When I was 18 years old and new high school graduate my father added me on one of his credit cards as an authorized user.
Of course, at the time, I had no idea what that meant other than I got a card with my name on it and I was only allowed to use it for gasoline and emergencies.
Who knew back in 1986 that the issue of being an authorized user would become such a lightening rod in 2013.
For those of you who don’t know, an authorized user is someone added to the existing credit card belonging to another person.
The authorized user gets a card with their name on it, and has access to the full credit limit, just like the primary cardholder.
The authorized user has no liability for the debt but the account is often reported to their credit reports and can help them to establish a credit history and a credit score.
The use of an authorized user credit card has long been a way for parents to help their kids to establish a credit report.
And, more recently, the abuse of the authorized user process has been a way for people to game the credit scoring system.
How the Authorized User Strategy Works
A consumer who has a poor credit score likely has a poor score for a variety of reasons, including derogatory information on the credit report and credit card balances that are too close to the credit limits.
Getting a credit card with a clean payment history and a low balance relative to the credit limit is a way to address those two issues.
The problem for the consumer is they can’t get a card like that because they’ve got bad credit.
Enter the Piggybacker
There are companies that will act as a broker between you and another consumer (a complete stranger, mind you) who does have good credit and does have those types of credit cards.
Essentially you pay a fee to the broker who then pays a portion of that fee to the stranger and, in exchange, the stranger adds you to his credit card as an authorized user.
You never get the actual card because it’s mailed to the primary cardholder, who then shreds it.
Eventually the card is added to your credit reports and can result in a higher credit score. You then go out and get credit cards or loans with lenders who believe you’re a better credit risk than you actually are.
There’s no blowback to the primary cardholder. You can’t run up any debt on his account (you don’t have the card). You can’t call the issuer to get a new card sent to you.
You don’t even know the account number because account numbers are truncated on credit reports. Plus, you’re not the primary cardholder so credit card issuers won’t deal with you anyway.
Here’s the argument against piggybacking…it’s arguably bank fraud because you’ve misled them into thinking you’re a better credit risk than you actually are.
And, if you used the U.S mail system to facilitate the piggybacking then it can also be deemed as being mail fraud.
What isn’t up for debate is the fact that it’s considered credit repair.
The Credit Repair Organizations Act (or “CROA”) defines credit repair as:
“Any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of improving any consumer’s credit record, credit history, or credit rating.”
So, if you’ve hired one of these piggybacking companies then you’ve actually hired a credit repair organization. That may or may not bother you, but at the very least you should be cognizant of your decision.
John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at SmartCredit.com, Mint.com, and the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. You can follow John on Twitter here.