When I was 18 years old and brand-new senior high school graduate my dad included me on among his credit cards as an authorized user.
Of course, at the time, I’d no concept what that suggested aside from I got a card with my name on it and I was just enabled to use it for gas and emergencies.
Who knew back in 1986 that the problem of being a licensed user would become such a lightening rod in 2013.
[Read: Build Your Credit in 2013 With the Licensed Individual Approach]
For those of you who do not know, an authorized individual is someone contributed to the existing charge card belonging to another individual.
The authorized individual gets a card with their name on it, and has access to the complete credit limit, just like the main cardholder.
The authorized individual has no liability for the financial obligation however the account is frequently reported to their credit reports and can help them to establish a credit history and a credit rating.
The use of an authorized individual charge card has actually long been a means for moms and dads to assist their children to develop a credit report.
And, more just recently, the abuse of the authorized individual procedure has been a way for individuals to game the credit scoring system.
How the Licensed Individual Approach Works
A consumer who’s a bad credit score likely has an inadequate rating for a range of reasons, consisting of derogatory information on the credit report and credit card balances that are too near to the credit limits.
Getting a charge card with a clean repayment history and a reduced balance relative to the credit limit’s a method to resolve those 2 problems.
[Read: 4 Things That Won’t Program Up On Your Credit Report]
The trouble for the consumer is they can’t get a card like that due to the fact that they have got bad credit.
Enter the Piggybacker
There are companies that’ll function as a broker between you and an additional consumer (a complete stranger, mind you) who does have good credit and does have those kinds of charge card.
Essentially you pay a cost to the broker who then pays a part of that fee to the stranger and, in exchange, the stranger adds you to his charge card as a licensed user.
You never get the actual card due to the fact that it’s mailed to the primary cardholder, who then shreds it.
Eventually the card is contributed to your credit reports and can result in a greater credit score. You then head out and get charge card or loans with lenders who think you are a better credit danger than you really are.
[Read: Ways to Submit a Conflict With a Lender]
There’s no blowback to the main cardholder. You cannot run up any debt on his account (you don’t have the card). You can’t call the company to obtain a new card sent out to you.
You do not even understand the account number because account numbers are truncated on credit reports. Plus, you are not the primary cardholder so charge card companies will not handle you anyway.
Here’s the argument against piggybacking … it’s perhaps bank fraud since you’ve actually misinformed them into thinking you are a better credit risk than you in fact are.
And, if you usinged the UNITED STATE mail system to facilitate the piggybacking then it can also be deemed as being mail fraud.
What is not really up for argument is the reality that it’s considered credit repair.
The Credit Repair work Organizations Act (or “CROA”) specifies credit repair work as:
“Any person who uses any instrumentality of interstate commerce or the mails to offer, provide, or do (or stand for that such person can or will sell, provide, or perform) any service, in return for the repayment of cash or various other valuable factor to consider, for the express or implied purpose of enhancing any consumer’s credit record, credit history, or credit score.”
So, if you have employed one of these piggybacking companies then you have in fact employed a credit repair organization. That might or mightn’t trouble you, but at the minimum you need to be cognizant of your decision.