Credit card piggybacking isn't a new practice. For years, parents have done it to help their children get a jump start on their credit. However, credit card piggybacking recently came under scrutiny because shady credit repair companies and unscrupulous consumers used the practice to artificially boost bad credit scores.
What is Credit Card Piggybacking?
Credit card piggybacking is much like the childhood game of being carried around on someone else's back, but instead of a back, you're carried on someone else's credit card account. Once you're added as an authorized user to a credit card account, the entire credit history typically appears on your credit report and included in your credit score.
Being an authorized user on an account with a positive payment history would boost your score. While late payments and high credit card balances could lower your score depending on the other information on your credit report. Note that not all credit card companies report authorized user accounts to credit bureaus, partly because of the cost and partly because of the way the practice has been abused.
Piggybacking became a way for people with bad credit to fake higher credit scores. For a fee, you could be added as an authorized user to someone else's positive credit card account and see a boost in your credit score. Then, you could use the higher score to qualify for loans, credit cards, and interest rates you wouldn't have been able to get otherwise.
When the mortgage meltdown began, lenders realized they'd been defrauded and criticized the practice. Fair Isaac, developer of the widely-used FICO score, threatened to remove authorized user accounts from the credit scoring calculation, but instead tweaked the score to allow lenders to better predict fraudulent authorized user accounts. Had the initial plan to remove authorized user accounts been carried out, some innocent consumers would have seen drops in their credit scores.
Is Piggybacking Illegal?
There's disagreement on whether credit card piggybacking is illegal or just deceptive. U.S. law says that someone who commits bank fraud "knowingly executes, or attempts to execute, a scheme or artifice to defraud a financial institution; or to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises." The crime is punishable by a maximum $1 million fine or 30 years in prison or both. By definition, credit card piggybacking could be considered bank fraud, but, to date, there has been no official ruling on the practice.