Piggybacking to an Improved Credit Score

While a car loan from a high risk lender can help consumers with poor credit reestablish their installment credit there is another step they can take that might help their revolving credit although it is not as effective as it once was
Piggybacking to an Improved Credit Score
Our experience

Consumers with questionable credit should know that there is something in addition to an auto loan that could improve their FICO scores.

Here at Auto Credit Express we’re familiar with what this is because we’ve spent over twenty years helping car buyers with bad credit that have been searching for online auto loans find those dealers that can give them a chance for an auto loan approval.

Authorized users

An authorized user is someone other than the account holder that can be added to a credit card account.

For someone with credit issues, being added as an authorized user to the account of someone with excellent FICO scores, a low account balance and a high credit limit, can result in an improved credit history and better credit scores:

• For one, the good account activity will begin appearing on the authorized user’s credit reports.
• Secondly, the additional credit line will increase the authorized user’s available credit while, at the same time, lowering their debt ratio.

Getting this done, especially if it’s a friend or family member, is pretty straightforward. The new card is typically mailed to the primary account holder so there’s little risk to that person.

Piggybacking

A less satisfactory credit repair method is one offered by companies who regularly solicit credit card account holders with high credit scores with offers to pay them for the right to add authorized users to their accounts.

Called “piggybacking”, these authorized users also can technically take advantage of the account holder’s positive credit activity to improve their credit scores.

Credit bureau response

Needless to say, this practice attracted the attention of FICO as well as the three credit bureaus. The result was “FICO 8” – a new scoring model designed to completely ignore authorized user accounts when calculating credit scores.

But according to FICO this failed to take into account the fact that ignoring authorized users would obstruct their compliance with the Equal Credit Opportunity Act, Regulation B – a rule that requires lenders to consider shared accounts of spouses when determining a married person’s credit risk. By ignoring these accounts, FICO 8 would be in violation of this regulation. FICO then set about revising the formula.

As it stands now, according to the FICO website, “To protect lenders and honest consumers, the FICO 8 formula substantially reduces any benefit of so-called tradeline renting. That’s a credit repair practice that entices consumers into being added to a stranger’s credit account in order to misrepresent their credit risk to lenders.”

In particular, if the authorized user is not issued their own card, FICO will not recognize the association when it computes their score.

Authorized user issues

There is a possible downside to doing this. If the account holder continues to pay on time, the credit scores of any authorized users will continue to reflect this positive activity. But if there are any late or missed payments, the FICO scores of both the account holder as well as any authorized users will simultaneously decline.

A tip: credit maturity matters as getting added as an authorized user to an older and more established account will be more effective.

As we see it

Becoming an authorized user on a credit card account can help you raise your credit scores – especially if the account holder is a family member with the same last name. But if you decide to take this step, just be sure you can handle the possible negative effects if the account holder’s payment habits suddenly change.

Another thing to keep in mind: Auto Credit Express matches applicants with damaged auto credit, even those that believe their only option is a BHPH car loan, with dealers that can offer them their best opportunities for approved auto loans.

So if you’re ready to establish your car credit, you can begin now by filling out our online auto loan application.

Posted on September 17, 2013 by in Credit Repair
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