How to Use Piggybacking to Build Up Your credit Score
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Using Piggybacking to Improve Credit Scores in the US: A Powerful Strategy
Having a good credit score is crucial for financial stability and opportunities. It determines your ability to secure loans, get favorable interest rates, and even influence your eligibility for rental agreements and job applications.
Piggybacking has gained attention if you're looking for effective ways to improve your credit score. In this blog post, we will explore piggybacking, how it can help improve credit scores, and provide essential steps to implement this strategy successfully.
Understanding Piggybacking
Piggybacking refers to the practice of becoming an authorized user on someone else's credit account to benefit from their positive credit history.
Authorized User Status: When you become an authorized user, the primary account holder's credit history, including their payment history and credit utilization, can impact your credit score.
Impact on Credit Score: Piggybacking can potentially boost your credit score by leveraging the positive credit history of the primary account holder.
Steps to Successfully Implement Piggybacking:
Find a Trusted Primary Account Holder: Look for a person with a strong credit history and responsible credit behavior.
Ensure a trustworthy relationship with the primary account holder, such as a family member or close friend.
Verify the Primary Account Holder's Credit Profile
Confirm that the primary account holder has a solid credit history, a low credit utilization ratio, and a record of on-time payments.
Check for any negative marks on their credit report, such as late payments or accounts in collections.
Establish Clear Terms and Agreement
Discuss expectations and responsibilities with the primary account holder.
Set clear boundaries regarding card usage, payment responsibilities, and maintaining financial discipline.
Become an Authorized User
Submit a request to the primary account holder's credit card issuer to add you as an authorized user.
Provide the necessary personal information and wait for approval.
Monitor Your Credit Report
Regularly review your credit report to track any changes and ensure that positive credit activity is reported accurately.
Utilize free credit monitoring services or consider subscribing to credit monitoring agencies for more comprehensive monitoring.
Maintain Financial Discipline
Use the authorized credit card responsibly by making small purchases and paying off the balance in full and on time.
Avoid exceeding your credit limit and practice responsible credit management to prevent any negative impact on your credit score.
Establish Your Own Credit
While piggybacking can be an effective strategy, it's essential to simultaneously work on establishing your independent credit history.
Open a secured credit card or apply for credit-builder loans to start building your own positive credit history.
Benefits and Considerations of Piggybacking
Rapid Credit Score Improvement: Piggybacking can quickly boost your credit score by leveraging an established positive credit history.
Access to Better Credit Opportunities: With an improved credit score, you can qualify for better loan terms, lower interest rates, and increased credit limits.
Considerations and Risks
Trust and Communication: Ensure a strong and trustworthy relationship with the primary account holder to avoid any misunderstandings or financial strains.
Dependency: Relying solely on piggybacking without establishing an independent credit history may limit your financial independence in the long term.
Potential Risks: If the primary account holder defaults or engages in irresponsible credit behavior, it could negatively impact your credit score.
Piggybacking a study
Title: Study Summary: Piggybacking Credit for Credit Score Improvement
Study Title: "Credit Where None is Due? Authorized User Account Status and Piggybacking Credit"
Authors: R. Avery, Kenneth P. Brevoort, Glenn B. Canner
Summary:
The study explores the practice of piggybacking credit, which involves becoming an authorized user on someone else's credit account to benefit from their positive credit history. The researchers investigate the impact of authorized user accounts on credit scores and their significance across different demographic groups.
Key Findings:
1. Piggybacking credit can substantially improve credit scores, particularly for individuals with thin or short credit histories.
2. By becoming an authorized user on an account with a good payment history, individuals may see an increase in their credit score, potentially leading to better access to credit and reduced borrowing costs.
3. The study suggests that removing authorized user accounts from credit scoring models has minimal effects on credit scores but may reduce model predictiveness.
Methodology:
The researchers analyze individual credit records to examine the presence and impact of authorized user accounts. They evaluate the differences in the importance of these accounts across various demographic groups. By assessing the potential effects of eliminating authorized user accounts from credit scoring models, they gain insights into the significance of this information for credit scores.
Implications:
1. Piggybacking credit can be an effective strategy for individuals with limited credit history to improve their credit scores.
2. Lenders should consider the presence of authorized user accounts when evaluating credit history, as they can significantly influence creditworthiness.
3. The study raises questions about the treatment of authorized user accounts in credit scoring models and suggests that their removal may not substantially impact credit scores.
Citation
Avery, R., Brevoort, K., & Canner, G. (2010). Credit Where None is Due? Authorized User Account Status and Piggybacking Credit. ERN: Regulation (IO) (Topic). https://doi.org/10.1111/JOCA.12020.
Impact on consumer credit from the Pandemic
Summary of Study: Credit Restructuring as Protection Against Bad Credit During the COVID-19 Pandemic
Author: R. Agustina
Publication Year: 2021
This study examines the role of credit restructuring as a legal protection mechanism for customers facing difficulties in repaying their debts during the COVID-19 pandemic. It explores the impact of the pandemic on borrowers, particularly micro, small, and medium-sized businesses, and analyzes the effectiveness of credit restructuring in maintaining credit quality and preventing bad credit outcomes.
Key Findings:
1. The COVID-19 pandemic has created economic challenges globally, leading to difficulties for borrowers, including micro, small, and medium-sized businesses, in meeting their financial obligations to banks.
2. Credit restructuring, implemented as a response to the economic impact of the pandemic, provides legal protection and assistance to debtors facing financial hardship due to COVID-19.
3. The study confirms that debtors affected by the pandemic have experienced challenges in fulfilling their obligations, either directly or indirectly due to the economic repercussions of the spread of COVID-19.
4. The credit restructuring process has proven efficient in maintaining credit quality by allowing debtors to repay their debts according to mutually agreed-upon restructuring agreements.
5. Through credit restructuring, debtors can navigate their financial difficulties and avoid falling into bad credit situations.
Methodology:
The study adopts an empirical juridical approach to analyze the impact of credit restructuring on customers facing financial difficulties during the COVID-19 pandemic. It examines the restructuring agreements and their effectiveness in maintaining credit quality and preventing bad credit outcomes for debtors.
Implications:
1. Credit restructuring is an important mechanism to protect borrowers facing financial challenges during crises such as the COVID-19 pandemic.
2. Banks and financial institutions should consider implementing flexible and supportive credit restructuring policies to assist customers in overcoming financial hardships and maintaining credit quality.
3. Creditors and debtors should collaborate to establish restructuring agreements that are feasible and mutually beneficial, allowing debtors to fulfill their obligations and maintain a positive credit standing.
Citation
Agustina, R. (2021). THE CREDIT RESTRUCTURING AS A FORM OF PROTECTION AGAINST CUSTOMERS DURING THE COVID-19 PANDEMIC. International Journal of Law Reconstruction. https://doi.org/10.26532/IJLR.V5I2.17528.
