While piggybacking for credit may help you build credit for your own, there are also some risks. Piggybacking is dependent on the credit history and payment history of the primary cardholder. We will discuss some of the possible pitfalls and other options. Before you sign up, it is important to fully understand the mechanics of piggybacking.
Tradelines authorized for users
The process of piggybacking on someone else's credit is known as authorized user tradelines. If the account holder is willing, it can increase your credit score. Piggybacking an account from another person is not allowed. This can improve your credit score by up 22 points.
It is not a regulated practice, but it does fall under the standard credit repair laws. However, very few companies follow the rules and regulations that govern this practice. Not only must reputable companies not charge upfront fees but they also have to disclose their services and adhere to certain contractual requirements.
Building credit through piggybacking
Individuals looking to build credit can consider piggybacking. This is a method that allows you to use an authorized user account on a card owned by another person. It can improve your credit score. Piggybacking is especially advantageous to people who have thin credit files with few accounts reporting. It is also beneficial to those with shorter credit histories.
Building credit through piggybacking can increase your credit score by as much as 22 points. The amount of your credit history, credit score, and current credit score will affect the extent of the credit rating increase. Federal Reserve study has shown that people with thin credit files benefit the most. The average increase in credit scores is 22 points. However, the range can reach 64 points.
Risks of piggybacking
Piggybacking allows individuals with low credit scores to increase their score. It works well in many cases when it involves a friend, family member, or colleague. Piggybacking can have its risks. If your benefactor goes into debt or drops you as an authorized user, it could impact your credit score.
One, piggybacking doesn't teach responsible credit habits. It also does not build a positive history of payments, which is crucial for improving credit scores. Lenders are not favorable to piggybacking, as they want their borrowers to be responsible with their credit accounts.
Alternatives to piggybacking
Piggybacking allows you to increase your credit score but not actually apply for a loan. The problem is that piggybacking does not improve your credit score, unless your score is already good. You'll need to look for other ways to increase your credit score before you consider piggybacking.
Piggybacking could be a dangerous strategy that can do more harm than good. Your credit card company may not be required to report information on authorized users. This could lead to you getting a negative rating. A missed payment can also have a negative impact on credit reports.