The Art of Piggybacking for Good Credit |
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by: Janna Weiss
Credit is a sticky subject for many young adults. Some listen to their elders’ well-intentioned but misguided advice and avoid getting any credit cards of their own while they’re in college. Others jump at every card offer they get, which leads to a lot of available credit and a lot of temptation to spend. But it’s the third category of young adults that we’ll discuss today: the piggybackers.
What’s a piggybacker? Simply put, it’s a young adult who doesn’t have a credit history of their own. But because they want to establish one, they’ve been added to their parents’ credit card accounts as an authorized user. This does wonders for the youngster’s credit; they reap the benefits of their parents’ years of timely payments. And since the parents can control or limit their child’s spending, it doesn’t really cost them anything to add a child as an authorized user.
Piggybacking benefits an adult child by making them attractive to lenders and landlords. Many young adults have trouble finding financing for a car, or quality living space, on their own because they have no established credit. But when their credit is linked to their parents’ history, youngsters enjoy a surge in their credit score.
Some piggybackers don’t even have credit cards of their own. They just do it for the positive credit history. But what happens when it’s time for a piggybacker to strike out on their own and apply for a card in their name? When they get removed from their parents’ accounts, will all of that great credit history vanish?
Experts say it won’t, as long as the separation is done right. Rather than removing an adult child from your credit card accounts immediately, give them about twelve months to establish a credit history of their own. When they apply for a credit card or a loan, they’ll be likely to get it because of the good credit score you both shared. And when they’ve made timely payments on their own credit endeavors for a year, they’ll have a strong enough history to stand on their own two feet.
They should also use that year of overlap to find a steady job. Lenders want to see not only a stable credit history, but also proof of a regular income. It won’t do your adult child much good to have a high credit score but no apparent means to pay for their loans.
Finally, keep piggybacking in the family. There has been a lot of debate over this practice in recent years, but FICO finally announced that its new scoring model will disallow piggybacking between strangers while family members can continue to engage in the practice together.
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