Piggybacking no Longer Good for Your Credit Score

Piggybacking to raise your credit score is just one more good thing ruined by greed.

Until recently, you could help your kids, siblings, or a friend establish a good credit rating by allowing them to become an authorized user on your credit card. This is, of course, assuming that you carried a low balance and always paid on time, so your own credit was excellent. You were, in effect, sharing your good credit standing with someone you cared for.

The other person didn’t need to use the card at all, but its entire history would be included in their credit report, lending them financial credibility through a positive account.

This was a great tactic to use for kids just beginning their financial lives and without any credit history of their own to fall back on.

But, like so many other good things, someone saw a way to profit from it, and ruined it for everyone else.

Credit repair companies began brokering the rental of authorized user slots on credit cards – for a fee in the range of $600. Before long, the credit bureaus got wind of the practice, deemed it fraudulent, and decided to stop counting authorized user accounts in their reporting.

What can you do instead?

If you’d like to help your child establish credit and you have a few dollars to spare, you can help him or her get a secured credit card. In this instance you deposit a set amount into a savings account in their name, and they use that savings account as security for a credit limit in the same amount.

By carefully using just a fraction of that amount each month, and paying it back promptly, your child (or other loved one) will establish credit in his or her own name. Once they’ve established themselves, the card will be moved to an unsecured status and the security will be released – and can be returned to you with interest.

Note that this is not a pre-paid credit card, and that a pre-paid card offers no benefit. The issuers don’t report to the major credit bureaus, so you could pay on time forever without a boost to your credit score.

Another good option is an unsecured sub prime card. These come with extremely high interest rates, so again, should be used sparingly and paid in full each month.

The two most important things to remember are first, to keep your balances low in relation to the credit you’ve been given – 10% is best, but under 30% is imperative. Second, pay on time, every time.

Author:Mike CloverCreditScoreQuick.com is your resource for free credit score reports, fico scores, loans, credit cards, insurance , identity theft protection and credit repair advice.

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