Does Piggybacking Credit Still Work for Building Credit?

Understanding Authorized User Status

Becoming an authorized user on another person’s credit card account means you can make purchases using that account. While you can use the card, you are not legally responsible for payments. This arrangement historically allowed individuals with limited credit history to “piggyback” on the primary account holder’s established credit, gaining a positive entry on their own credit report.

Credit bureaus record information for authorized users. This data includes the account’s opening date, its credit limit, and the payment history. For an authorized user, these details would appear on their credit report, potentially contributing to the length of their credit history and demonstrating responsible credit use if the primary account was managed well.

The traditional mechanism operated on the premise that the authorized user benefited from the primary user’s good financial habits. If the primary account holder maintained a low credit utilization ratio and made all payments on time, these positive behaviors would reflect on the authorized user’s credit file. This passive benefit was a straightforward way for individuals to begin establishing a credit profile. However, the effectiveness of this mechanism has evolved with changes in credit scoring methodologies.

Evolution of Credit Scoring Models

Credit scoring models have undergone significant transformations to more accurately assess an individual’s creditworthiness. FICO Score 8, introduced in 2009, marked a notable shift in how authorized user accounts are evaluated. This FICO score version adjusted weighting to distinguish genuine financial relationships from those solely for credit-building.

The primary reason for these adjustments was to mitigate the practice of “tradeline renting,” where individuals would pay to be added as an authorized user to a stranger’s account to artificially boost their credit score. FICO 8 aimed to filter out non-genuine relationships. For example, if an authorized user’s address or last name differs from the primary account holder’s, the impact of that authorized user account on the FICO 8 score may be reduced or disregarded.

Another significant change involved the emphasis on individual responsibility. Newer models aim to ensure that a credit score truly reflects an individual’s own borrowing and repayment behavior. While authorized user accounts can still appear on a credit report, their influence on the overall score is now more carefully scrutinized. This ensures credit scores accurately represent financial reliability, rather than benefiting from passive association.

Current Impact of Authorized User Accounts

The present-day reality for authorized user accounts is that their influence on credit scores is generally diminished compared to prior scoring models. While an authorized user account still appears on a credit report, its positive impact on FICO Score 8 or newer models is not as substantial as it once was. The benefit is often reduced, particularly if there is no genuine financial or familial connection between the primary and authorized user.

However, authorized user status can still provide some benefit under specific circumstances. For instance, if the primary account belongs to a close family member and has a long history of perfect payments and low credit utilization, the authorized user may still see a modest positive effect on their credit history. A high credit limit on the primary account, with responsible usage, can also positively contribute to the authorized user’s credit utilization ratio, a significant factor in credit scoring.

Conversely, situations where the impact is minimal or non-existent include non-family relationships or accounts with a short history. Furthermore, if the primary account has late payments or high credit utilization, this negative information can also reflect on the authorized user’s credit report, potentially harming their score. Therefore, while the positive payment history and credit utilization of the primary account still contribute, their weight for an authorized user is significantly reduced by modern scoring algorithms.

Alternative Approaches to Credit Building

Given the reduced and more nuanced impact of authorized user accounts, individuals seeking to establish or improve their credit history should focus on more direct and reliable methods. One effective strategy involves securing a secured credit card.

With a secured card, you provide a cash deposit that typically serves as your credit limit, ranging from a few hundred dollars. This deposit minimizes risk for the lender, making these cards accessible to individuals with limited or no credit history.

Another beneficial approach is obtaining a credit builder loan. These loans are designed specifically to help individuals establish credit. The loan amount is typically held in a savings account by the lender while you make regular payments over a set period, often 6 to 24 months. Once the loan is fully repaid, you receive the funds, and the timely payments are reported to the credit bureaus, building a positive payment history.

Becoming a primary account holder on a small credit card is also a direct way to build credit. Starting with a low credit limit and making small purchases that are paid off in full each month demonstrates responsible credit management. Consistently making all bill payments on time, including utilities and rent if reported to credit bureaus, further reinforces a positive payment history. Maintaining low credit utilization, generally below 30% of your available credit, also plays a significant role in improving credit scores.