Is the Practice of Piggybacking Credit Illegal?

“Piggybacking credit” is a term in personal finance referring to a strategy individuals use to potentially improve their credit standing. This practice involves leveraging another person’s established credit account to benefit one’s own credit report. It helps those with limited or no credit history establish a financial footprint.

Understanding Piggybacking Credit

Piggybacking credit typically involves becoming an authorized user on an existing credit card account. In this arrangement, the primary account holder adds another individual, the authorized user, to their account. The authorized user receives a card linked to the primary account, allowing them to make purchases, though they are not legally responsible for the debt incurred. This mechanism allows the authorized user’s credit report to reflect the payment history and credit utilization of the primary account.

Credit card issuers commonly offer authorized user status, enabling family members or trusted individuals to share an account. If the primary account holder maintains a positive payment history and low credit utilization, these favorable factors can appear on the authorized user’s credit report, potentially helping to build or improve their credit score. This differs significantly from joint accounts or co-signing, where all parties share equal legal responsibility for the debt.

Legality and Regulatory Landscape

Becoming an authorized user on a credit card account is generally legal and widely accepted within the credit reporting system. Credit bureaus and lenders recognize this arrangement, originally intended to facilitate credit access for family members or trusted individuals. When managed transparently and within a genuine relationship, authorized user status can serve as a legitimate tool for credit building.

However, the practice can become problematic or illegal when fraudulent intent is involved. Legal issues arise when individuals or companies use authorized user status to deceive lenders or credit bureaus, such as through the sale of “tradelines.” This typically involves an individual paying a fee to be added as an authorized user on a stranger’s account, with no intent to use the card or engage in a genuine relationship. Such schemes aim to artificially inflate credit scores by misrepresenting creditworthiness, which can constitute fraud.

While selling tradelines is not explicitly illegal, it is widely considered unethical by the credit industry. Credit reporting agencies and lenders view the for-profit sale of tradelines as an attempt to manipulate credit scores and misrepresent financial standing. Credit bureaus employ methods to identify and filter out accounts that appear to lack a genuine relationship, aiming to mitigate artificial credit enhancements. Engaging in schemes involving misrepresentation or deceptive practices to obtain credit can lead to severe legal consequences, including charges related to bank fraud or other financial crimes.

Navigating Credit Piggybacking

For individuals considering becoming an authorized user, a genuine and trusting relationship with the primary account holder is paramount. The primary account holder’s financial behavior, including late payments or high credit utilization, will be reflected on the authorized user’s credit report and can negatively impact their score. Before proceeding, an authorized user should confirm that the card issuer reports authorized user activity to all major credit bureaus, as not all do.

Primary account holders adding an authorized user assume full responsibility for all charges made on the account, regardless of who incurred them. Clear communication regarding spending limits, payment expectations, and account management is essential to prevent misunderstandings and potential financial strain. Establishing an agreement about how purchases made by the authorized user will be reimbursed can help maintain financial order.

Consumers should exercise caution regarding services that “sell” tradelines or promise rapid credit repair through unauthorized user additions. These services are often associated with fraudulent schemes and actively targeted by regulatory bodies like the Federal Trade Commission (FTC). Attempts to circumvent legitimate credit building through deceptive means carry significant risks, including financial loss and legal repercussions.