What Exactly is "Piggybacking"?
Having a poor credit rating can be detrimental if you are applying for a long-term loan, such as a mortgage. The difference of a single percentage point in your loan interest rate can translate into thousands of excess dollars owed to your lender. A poor credit score can even force your lender to deny you application altogether. Consequently, clever consumers are always on the lookout for smart ways to raise their credit.
Piggybacking is a financial process that allows consumers with poor credit to “buy” a better credit rating. The process is simple. Credit card holders are allowed to add multiple names to their accounts. Generally, this is used by married couples or by parents who want to help their children build credit history. A person who is newly added to an existing credit card shares the credit history of that account simply by virtue of being added. If the account has a long, established history of timely payments, the newly added person’s credit rating has the potential to increase—sometimes dramatically.
Piggybacking Can Be Profitable—For Everyone Except the Bank
Credit building groups, such as instantcreditbuilders.com (ICB), approach people with high credit ratings. Depending upon personal credit rating and the length of time a credit account has been open, groups like ICB will pay a consumer with good credit $100 to $150 to add a new name to an existing account. ICB will then charge a consumer with poor credit seeking to raise his or her credit rating $900 to facilitate being added to the account. ICB ensures that both parties do not have access to each other social security numbers. They also ensure that the newly added member is never issued an actual card.
Legal and Ethical Complications
Once the credit card agency makes its periodic report to the credit bureau, the consumer with poor credit is dropped from the account. However by virtue of having been on the account during the credit bureau report, his or her credit rating improves. This allows a window of opportunity in which to apply for a loan with an artificially inflated credit score. While piggybacking is technically not illegal, many lawmakers have begun to question its ethics and are threatening to address the practice through legislation. Fair Isaac, the organization that tabulates credit rating, has also announced plans to begin calculating credit rating in such a way as to close the “piggyback loophole”. Additionally, some financial consultants are concerned that lenders may possibly in the future attack piggybacking borrowers for “knowingly misleading” them into believing they had better credit and subsequently sue piggybacking borrowers for perpetrating a fraud.
Fraud and Identity Theft
Identity theft is a primary risk of piggybacking. Groups like ICB need tremendous amounts of sensitive identity information in order to facilitate the piggybacking process. While these groups strive to ensure that the right information never falls into the wrong hands, consumers need to be cautious when selecting a piggybacking firm.
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