How to Build Credit With Credit Piggybacking
If you ever plan to take out a car loan, rent out an apartment, apply for a personal loan, or even take out a mortgage in the near future, you’ll need to have good credit. Having good credit is a staple in the world of financing and loans, and it just makes things so much easier for consumers when the time comes to take out credit.
But how can consumers build credit without having had a loan product in the past? What if you’ve never had a credit card or a loan to show creditors what type of candidate you’d be as a borrower? What if you’re just coming out of school and are just starting a career, never having had any loan to your name? How are you supposed to get approved for credit with no credit at all?
The good news is that there are a few ways for you to build credit from the ground up, especially if you are just starting out in life. And one way to do that is to take advantage of what’s known as “credit piggybacking.”
What really happens when you ruin your credit? Read here.
What is Credit Piggybacking?
If you have parents who currently have good credit, you may be able to use credit piggybacking to your advantage. As the name suggests, you would essentially be “piggybacking” off of your parents’ credit cards. Most likely your folks have a credit card or two that they make use of on a regular basis. If they are responsible with their cards and make their payments on time every month, then they’re probably in good standing with their credit card issuer.
If your parents have a good credit score, you can take advantage of that fact by having your name added to their credit card. Credit piggybacking basically refers to a credit card holder adding another person to their account as an authorized user. That means you would be able to use their credit card as your own, making expenditures and paying them off after every billing cycle.
The complete history of that credit card account will then on your credit report and will be included in your credit score. If you and your parents continue to use the credit card responsibly and make timely payments, this will reflect positively on your credit report. This is a great way to not only build credit from the ground up but also to build good credit that will help you get approved for various types of loans in the future.
Becoming an authorized user on a credit card account with a positive payment history is a great way to make credit piggybacking work for you.
Click here to learn how to read your credit report.
Considerations About Credit Piggybacking
Before you consider using credit piggybacking as a means to build credit, it’s important to have a conversation with both yourself and with the credit card holder.
For starters, you will really need to examine what your financial habits are like. You need to make a commitment to spending only within your means. If you make $2,000 per month, for instance, under no circumstances should you be spending $3,000 a month. If you don’t have the funds to cover those bills, you can quickly and easily find yourself in the red.
Also, you will need to have an in-depth conversation with the credit card holder to ensure that they are in good credit standing. Ideally, you want to be associated with someone with a good credit score because the entire activity on the credit card will be reflected on both their credit report and yours.
Of course, you will also want to make sure that the credit card holders – likely your parents – are comfortable with adding your name to their account. By doing so, they are taking a risk for you, so you should make every effort to make good on your promise to use the credit card responsibly and contribute to your monthly payments each billing cycle.
Piggyback Credit: How Long Does it Take?
The act of having your name added to a credit card user’s account takes just a few days for all the details to be ironed out. Once your name has been added, you can begin using the credit card right away.
In terms of building credit through a piggybacking method, you can start to see results in about 6 months. It takes at least that long for credit activity to take place before a credit score can be calculated. If you make small purchases every month using your credit card and pay it off as soon as your bill payment is due, there’s little reason for you not to be able to develop a good credit score within a few months.
What About Repairing Credit?
Credit piggybacking is designed to help build credit and give a credit score a good boost. However, piggyback credit repair does not exist. Credit repair involves removing negative factors from your credit report, which is not the same as building good credit through piggybacking. If you currently have a poor credit rating as a result of negative items on your report, you will have to take other measures to rectify these issues which cannot be done through credit piggybacking.
Is Credit Piggybacking Legal?
Credit piggybacking has actually been used over the past four decades by mortgage brokers and lenders. Back in the mid-1970s, it became a popular way to give credit scores a boost thanks to the Equal Credit Opportunity Act of 1974. This Act allowed credit accounts to be legally attached to someone else’s credit account.
If you are currently without credit or have bad credit, you may want to consider credit piggybacking. But what if you don’t have a friend or family member who can add you as an authorized user on their account? You might want to consider our Credit Building service. For more information on how it can help you build your credit from the ground up, click the link below.