Getting the ball rolling when building (or rebuilding) credit is a classic catch-22. You need credit to build credit.
If you have absolutely no credit history – or if you have a bottomed-out credit score – then lenders are less likely to extend the credit you need to start building your FICO score. You may even have trouble getting a cell phone plan or basic home utilities in your own name, since these companies often rely on your credit score for qualification.
So what are your options?
One popular option is known as piggybacking. You use this method to ride on the coattails of another person’s good credit. Over time, their credit habits will build your credit score – even if you haven’t actually used their good credit.
How it Works
The most common way to piggyback on another person’s credit is to be added as an authorized user on that person’s credit card. Most credit card companies allow you to add a person (or multiple people) as an authorized user on the account.
And authorized user’s credit is affected by the credit card in the same way that a joint account holder’s credit would be. As long as payments are made on time and the credit card balance is relatively low relative to the credit limit, the effect will be positive.
Benefits of Piggybacking
If the person who has added you as an authorized user has excellent credit card habits (keeping a low debt to credit ratio and making payments on time, especially), then your credit score will benefit.
FICO’s latest score formula – FICO 8 – counts authorized credit card accounts when calculating an individual’s credit score. If you don’t have much credit at all outside of your authorized user status, then the account owner’s good credit habits can really boost your credit score over time.
Also, piggybacking is relatively safe as far as financial obligations go, too. Unlike a joint account holder, you’re not legally responsible for any debts on the credit card. So even if the account owner racks up a ton of debt and doesn’t pay, the credit card company can’t come after you for payments. (Though this would, of course, negatively affect your credit.)
While piggybacking can be a helpful practice, it can also go wrong – and quite easily. All it takes is one missed payment or an overly high balance for your authorized user status to wreck your credit score. This is especially true if you don’t have other credit, and this account makes up the bulk of your credit file.
And, of course, whenever you tie your financial wellbeing to the financial practices of another person, you could be in for some relational trouble. The same thing that makes loaning money to (or borrowing money from) friends or family members risky makes becoming an authorized user (or adding one to your accounts) risky.
Becoming an authorized user on a responsible person’s credit card account is an excellent way to boost your credit score – but only if you take the right precautions to ensure that your piggyback ride doesn’t take a wrong turn.
Making it Work
But just because becoming an authorized user could go wrong doesn’t mean that you shouldn’t look into this approach – especially if you have a parent or close family member with impeccable credit history. If you do decide to become an authorized user, take these steps to prevent potential credit and relational fallout:
- Don’t get a credit card: While you can legally spend on an account where you’re an authorized user, this is an excellent way to create problems. Remove the temptation by becoming an authorized user in name only, with no access to a physical credit card linked to the account.
- Ask for access to the account records. The easiest way to make sure your authorized user status isn’t wrecking your credit is to have access to the account records – either online or through paper bills. That way, you can make sure bills are being paid on time and the account balance isn’t becoming too high.
- Or check your credit monthly: If the account owner is (understandably) uncomfortable giving you access to his or her credit card bills (which could include all kinds of personal information), then start pulling your credit score every month. This will clue you in on any potential problems with the account. Services like MyFICO will give you access to monthly credit reports and your score, so you can easily track account changes online.
- Know how to remove yourself: As an authorized user, you should be able to remove yourself from the account with a simple phone call (if, for some reason, the account owner won’t or can’t). Before you sign up to be an authorized user, check the process for having yourself removed, if necessary. At the first sign of trouble, take yourself off of the account to prevent further credit damage.
As long as you take these steps, you should survive – and possibly thrive – as an authorized user on another person’s credit card account. And this can be a great, easy, cost-free way to build your credit score.
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