Piggybacking on Credit History – Can You Improve Your FICO Score?
This article was originally published April 30, 2007. An Update to the content of the article was made on June 29, 2007. Many thanks to the Google Groups users for the heads up on the new Fair Isaac info!
There has been some recent excitement around the idea of "piggybacking" to improve your credit score. First, what is "piggybacking?" If you have a good credit score and go through the process of "authorizing" a user to be part of your account on a credit card, that person will automatically inherit the credit history of your card. If you, as the credit card owner, have never had late payments and have had the line of credit open for a long period of time, these are all positive factors that contribute to a higher score. The new "authorized" user will now have that credit card's history on their credit report.
Credit Scoring
A company called Fair Isaac developed the mathematical formula for the score the consumer public knows as FICO. Mortgage companies and other lenders use the FICO score to determine credit worthiness when offering you a loan. Because the FICO system is a computer based software program that automatically calculates scores, it comes at no surprise that there are holes in the system that can be manipulated for the users benefit. In fact, there are now companies promising to help you improve your score through the piggybacking technique.
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Drawbacks and Benefits
When you "authorize" someone to be a user of one of your lines of credit such as a credit card and give them card information, there is always the risk that they may misuse your card and charge high balances. In other cases such as a parent who sends their child away to college, piggybacking allows the parent to give their child access to a credit card while quickly establishing a credit history. After graduation, a child with a good credit history can become financially self-sufficient more quickly and do things such as obtain their own credit card, buy a car, or purchase a home.
Ethics of Piggybacking
According to the Fair Isaac company, piggybacking has not been declared illegal, and they have no current plans to change their formula or close the loopholes in their scoring system.** Many of the credit industry experts worry about the ethical nature of piggybacking because lenders may not be getting the true picture of a person's credit history.
***June 29, 2007 Update to this article – On June 5th 2007, Fair Isaac announced that it will be changing its scoring model later this year. The new model will not be considering the authorized user accounts. Looks like Piggybacking on credit history may become history itself!