A bad credit score can impact your ability to get a mortgage, purchase a car, and obtain a credit card. Improving your credit score usually involves taking specific steps that slowly move your score in the right direction.
Because a bad credit score can put your house or vehicle-buying plans on hold, some people with poor credit might be in a bind and seek ways to increase their scores faster.
Is paying for a high credit score a viable option for those with poor credit?
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Is Paying to Improve Your Credit Score Legal?
Is it legal and ethical to pay for a credit score increase? Under current U.S. laws, it is not illegal to pay a credit repair service to improve your credit score.
Credit repair companies do not engage in bribery or other illegal acts to get a credit bureau to change your credit score. Instead, they add you as an authorized user to loans or credit card accounts that belong to people who already have good credit scores.
You can theoretically do the same thing for free with a parent, relative, or friend. In fact, becoming an authorized user is common for young people who want to build a positive credit history.
Even though paying to be added as an authorized user is not illegal, it is ethically questionable. You are actively trying to deceive the credit bureau by putting your name on accounts that you will never actually use.
What Is Piggybacking?
The practice of paying a service to add you as an authorized user on the account of someone with a good credit score is known as “piggybacking.”
The goal of piggybacking is to increase your credit score by adding your name to the positive reports that the credit card company or lender sends to the credit bureaus. Though your name is on the accounts, you do not utilize the credit services in any way. You merely benefit from having your name attached to the account.
Once your credit score reaches the desired level, the company removes you as an authorized user.
Credit repair companies also perform other services, such as helping you remove negative events from your credit history, such as a default or failure to pay even after referral to a collection agency.
Drawbacks of Piggybacking
Piggybacking is not as successful as it once was. Lenders and credit card companies have become more aware of these kinds of strategies. Credit bureaus changed their calculations so that they do not give as much weight to scores of people who are authorized users rather than primary cardholders. This change means that piggybacking is not as effective a strategy as it once was.
There are also security concerns with this strategy. When you piggyback, you get added to someone else’s credit accounts. To do this, you need to provide identifying information such as a Social Security number. The person whose account you use can get access to your information.
They could, in theory, use it to steal your identity. Even if this does not happen, it is not good security practice to expose your Social Security number to someone you don’t know.
Building a good credit score requires proper credit management and good personal finance practices. While taking the steps necessary to increase your credit score, you are also developing good habits and learning necessary credit management skills. You do not get a chance to develop these habits and skills if you look for a loophole such as piggybacking.
Steps to Pay for Credit Improvement
You start the process of paying for credit improvement by finding a credit repair company that offers a paid piggybacking service. Credit repair companies can also provide other services, such as disputing late payments or getting more manageable repayment terms.
You provide the necessary information to the credit repair company, which sets up an account for you with a cardholder who participates in their program. The company and cardholder split the fee that you pay.
The credit repair company then uses the information, including your name and Social Security number, to add you as a user on the account. You do not get a card, and you do not have any control over the account. Your only benefit is an increased credit score from being listed on the account.
Credit bureaus will see you as an authorized user on the account.
A few things happen when you become an authorized user in this way. Your credit limit rises by the amount of the limit on the piggybacked account. This rise will decrease your credit utilization ratio, which can quickly increase your score. The ratio accounts for approximately 30% of your overall credit score.
You can also lengthen your credit history if the piggybacked account has been open for a long time.
No doubt you’re wondering whether piggybacking works. A decade-old study by the Federal Reserve said that people with minimal credit history who engage in piggybacking increase their scores by 45 to 64 points.
If you are a subprime borrower with a FICO score of 669 or less, you can benefit from this increase. However, those with a score below 600 will not benefit because an increase will still leave them in the subprime tier.
Other Strategies to Improve Credit
Piggybacking may work, but the strategy is not as effective as it once was because credit bureaus are more aware of the practice now. If you want to increase your score without exposing yourself to the drawbacks of piggybacking, there are steps that you can take.
Improving your credit in a more organic way takes longer, but you can also develop positive habits that may help you maintain a good or excellent credit score throughout your lifetime.
Here are some steps you can take to improve the different variables that affect your credit score.
- The first step is to visit AnnualCreditReport.com to get a free credit report from the three major credit bureaus: Experian, Equifax, and TransUnion. This report will help you see where you stand. You can also look at it to see if there are any errors. The bureaus have a process that you can use to dispute such errors. Doing this could help you get a quick credit score increase.
- Make payments on your balances. Making frequent payments on your credit card balances can help you avoid late payments, which damage your credit score, and also help lower your credit utilization ratio. These two variables — payment history and amounts owed — account for more than half your credit score. If making larger payments once per month is a challenge, try making smaller payments during the month whenever you have a few extra dollars on hand.
- Become an authorized user on a family member’s account. If you lack credit history, you can become an authorized user on a family member or friend’s account. The advantage of doing this instead of paying for a piggybacked account is that you can have access to an actual card. With access to a functioning account, you can learn the necessary account management skills to handle your own accounts in the future.
- You can request higher credit limits on current accounts. With higher credit limits, you will immediately lower your credit utilization ratio. This step is one of the best options for increasing your credit score quickly. However, you have to be in good standing already with your credit card company. If you are not, they may deny your request.
- Maintain old accounts. You may think that having fewer accounts is better. This is true when it comes to opening new accounts. However, it is actually advantageous to keep old accounts open. The length of your credit history affects your credit score, so you will want to keep old accounts open and untouched.
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