How Does Piggybacking Credit Work? A Detailed Explanation

Piggybacking credit is a strategy where an individual is added as an authorized user to an existing credit card account belonging to another person. This allows the authorized user to leverage the primary cardholder’s established and positive credit history to potentially benefit their own credit standing. The authorized user’s credit report reflects the activity of the primary account, influencing their credit profile without them directly applying for their own credit products.

What Piggybacking Credit Means

In this arrangement, there are two distinct roles: the primary cardholder and the authorized user. The primary cardholder is the individual who originally opened the credit card account and is legally responsible for all charges and payments associated with it. The authorized user is granted permission to use the credit card, often receiving a card in their own name linked to the primary account.

Authorized users typically include individuals with limited or no credit history, such as young adults, or those seeking to improve an existing credit profile. While the authorized user can make purchases with the card, they generally do not hold financial responsibility for the debt incurred. This distinction is important because the primary cardholder remains solely liable for the entire balance, regardless of who made the charges. The authorized user benefits from the primary account’s credit history being reported on their own credit file.

How Account Activity Impacts Credit Reports

The mechanism by which piggybacking credit influences an authorized user’s credit involves the reporting of the primary cardholder’s account activity to major credit bureaus. When a primary cardholder adds an authorized user, many credit card issuers report the account’s history to Experian, Equifax, and TransUnion for both the primary and authorized user.

The information shared typically includes the payment history, which reflects whether payments are made on time. The length of the credit history for that specific account also becomes part of the authorized user’s credit file. Furthermore, the credit utilization ratio, which is the amount of credit used compared to the total available credit, is usually reported. For this strategy to be effective, the credit card issuer must report authorized user activity to the credit bureaus, as some do not. If reported, this information can appear on the authorized user’s credit report within 30 to 45 days.

Advantages for the Authorized User

Becoming an authorized user offers several benefits for an individual seeking to establish or improve their credit. For those new to credit, this strategy can help establish a credit history. If the primary account has a long history, the authorized user’s average age of accounts may increase, which is a factor in credit scoring.

A low credit utilization ratio on the primary account can positively influence the authorized user’s credit score. This is because credit utilization is a significant component of credit scoring models. The authorized user also inherits the primary cardholder’s on-time payment history, which can boost their own payment history. Being an authorized user can also contribute to diversifying one’s credit mix if they have limited types of credit. These factors can lead to a higher credit score and greater access to future credit opportunities, such as loans or other credit cards.

Primary Cardholder Responsibilities

The primary cardholder assumes responsibilities when adding an authorized user to their credit card account. The primary responsibility is sole financial liability for all charges made on the account, including those incurred by the authorized user. If an authorized user makes purchases and does not reimburse the primary cardholder, the primary cardholder is still obligated to pay the credit card issuer.

Maintaining open communication and trust between the primary cardholder and the authorized user is important. An authorized user’s spending habits do not directly impact the primary cardholder’s credit score unless they result in missed payments or high credit utilization. Any late payments or high balances caused by the authorized user’s spending could negatively affect the primary cardholder’s credit score, as payment history and credit utilization are significant factors.

Adding an Authorized User

The process of adding an authorized user to a credit card account is generally straightforward and can be completed through various channels provided by the credit card issuer. Primary cardholders can add an authorized user by contacting their credit card company directly, either by phone or through their online banking portal or mobile application.

When adding an authorized user, the primary cardholder will need to provide identifying information for the individual. This often includes the authorized user’s full name, date of birth, and sometimes their Social Security Number, though an SSN may not always be mandatory for reporting. After the authorized user is successfully added, they typically receive a physical credit card in their name that is linked to the primary account. Some issuers may have age requirements for authorized users, with some allowing individuals as young as 13 years old.