How Does Piggyback Credit Actually Work?

Piggyback credit is a strategy where an individual is added to another person’s established credit card account to potentially improve their own credit standing. This method allows the authorized individual to benefit from the payment history and credit limits of a well-managed account. It offers a pathway for those with limited or no credit history to begin building a financial track record.

Understanding Piggyback Credit

Piggyback credit refers to the arrangement where a primary account holder adds another person as an authorized user to their credit card account. The primary account holder is the individual who originally opened the credit card and is legally responsible for all charges and payments. An authorized user receives a card linked to that account and can make purchases, but holds no legal obligation to repay the debt.

This arrangement functions on the premise that the authorized user’s credit profile can reflect the payment behavior and account characteristics of the primary account. For instance, if the primary account holder consistently makes on-time payments and maintains a low credit utilization, these positive attributes may be reported to credit bureaus for the authorized user. The authorized user gains access to the credit line without undergoing a personal credit check during the addition process.

How Credit Bureaus Process Authorized Users

Major credit bureaus, including Experian, Equifax, and TransUnion, record and integrate authorized user accounts into an individual’s credit report. When a credit card issuer reports account activity, it often includes details for both the primary account holder and any authorized users. The authorized user’s credit report may display the account’s payment history, its credit limit, and the overall credit utilization.

Reporting practices vary among card issuers, as they are not universally mandated to report authorized user activity to all three bureaus. Some issuers might report only if the primary account is in good standing, while others might have age requirements for reporting. If an issuer does not report authorized user activity, the account will not appear on the authorized user’s credit report and will have no impact on their credit standing. It is advisable to confirm with the card issuer if they report authorized user accounts before establishing such an arrangement.

Credit bureaus consider several factors when processing these accounts, such as the age of the account and the primary account holder’s payment behavior. A long-standing account with a history of timely payments can contribute positively to the authorized user’s credit age. However, negative activity, such as missed payments or high credit utilization on the primary account, can also be reflected on the authorized user’s report, potentially impacting their credit score.

Adding an Authorized User to a Credit Account

Information Gathering and Preparatory Steps

Before adding an authorized user, the primary account holder needs to gather specific information from the individual. This includes the authorized user’s full legal name, date of birth, and Social Security Number (SSN). In some instances, their address may also be required. The primary credit card account should be in good standing, meaning payments are current and the account is actively managed.

The option to add an authorized user is commonly found through the credit card issuer’s online banking portal or mobile application. The primary account holder can also contact customer service directly via phone. Some issuers may require specific forms for the addition.

Procedural Action for Submission

The submission process often involves navigating to the designated section within the online portal or mobile app, such as “Manage Cards” or “Add Authorized Users.” The primary account holder then enters the gathered details into the provided fields. After reviewing the information for accuracy, the request is submitted electronically.

The credit card issuer processes the request, which may take a few business days. A new credit card, embossed with the authorized user’s name, is mailed to the primary account holder’s address or directly to the authorized user, depending on the issuer’s policy. The timeframe for the authorized user account to appear on credit reports can range from several weeks to a few months. There may also be a fee for adding an authorized user, particularly for certain premium or rewards-based credit cards.

Impact on the Authorized User’s Credit Profile

Becoming an authorized user can influence various components of an individual’s credit profile. The payment history of the primary account, which accounts for a significant portion of a credit score, will be reflected on the authorized user’s report. If the primary account has a consistent record of on-time payments, this can contribute positively to the authorized user’s payment history. Conversely, missed or late payments on the primary account can negatively impact the authorized user’s credit score.

The length of credit history, another factor in credit scoring, can also benefit from authorized user status. If the primary account is well-established and has been open for many years, that age can be incorporated into the authorized user’s credit report, potentially lengthening their average credit age. Credit utilization, which is the amount of credit used relative to the total available credit, is also affected. If the primary account maintains a low balance relative to its credit limit, it can help lower the authorized user’s overall credit utilization ratio, which is favorable for credit scores.

Being an authorized user on a credit card can diversify an individual’s credit mix, which considers the different types of credit accounts held. This can be beneficial, particularly if the authorized user primarily has other forms of credit, such as installment loans. The impact of these factors relies heavily on the primary account holder’s responsible management of the credit card.