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Authorized users

When you hear the term 'credit repair,' what comes to mind?

Most people think of third party credit repair companies that help you identify and correct errors and other derogatory listings on your credit report. This is a common, and no-doubt, effective way to improve your credit.

Responsible use of credit such as habitually paying your bills on time every month, paying down debt, keeping your credit utilization ratio low are also highly recommended credit repair tactics. However, the above methods, while effective, also tend to take quite a bit of time. Particularly the second set of options. It is especially difficult to improve your credit with these tactics if you can't qualify for credit in the first place.

That's where a third option comes in. Are you familiar with the credit boosting strategy of becoming an authorized user (otherwise known as "piggybacking") on another persons account? In most cases, the person who has little or no credit, or even bad credit, is added as an Authorized User (AU) to a relative's or friend's account. They're added as an AU to another's account typically because they can't get their own credit card due to insufficient or bad credit. As long as the primary account is in good standing, all of the positive credit history will be passed on to the AU's credit report; raising his/her credit score.

Most AU's have a close relationship with the primary account holder. But what if you don't know anyone who has a credit account in good standing who is willing to add you as an AU? There is another option. There are people, who have good credit, that will 'rent' out, for a small fee, an Authorized User spot on their credit card to another person who needs to improve his/her credit. Once the 'renter' is added to the account as an Authorized User, all of the account history - payments, available limits, balances, etc - begins to appear on his/her credit file. Adding positive credit history immediately affects the renter's credit and improves scores. In this situation, the AU does not have access to the credit line, meaning he/she cannot make any purchases with the card nor make any changes to the account.

Is it legal?

Because piggybacking is such a quick and easy way to enhance credit, many people wonder if it is legal. We are here to assure that it is 100% legal. Perhaps you remember a while back some news on Authorized User abuses which tried to make piggybacking obsolete (you can find more details in the article FICO 08). Well, any and all attempts to wipe out this practice have been thwarted; thanks to a provision of the Equal Credit Opportunity Act, which permits Authorized Users to benefit from the good credit history on an established account.

Is it ethical?

Think about all of the ways credit card companies, lending institutions, credit bureaus, and other businesses within the credit industry have taken advantage of the American consumers. Some so egregious they had to be outlawed, namely; Universal Default, deceptive marketing tactics, marketing to consumers under the age of 21, raising rates without warning or for justifiable cause, penalizing more than once for the same offense, pro-rating interest rates, vague and ambiguous wording in the terms and agreement contract, etc.

The credit reporting industry is a whole other issue

The credit bureaus continue to violate credit reporting regulations despite numerous complaints. In fact, the FTC (Federal Trade Commission) has received more complaints about the credit bureaus than any other credit-related organization. Yet, every year, the bureaus continue to make millions off American consumers.

That being said, piggybacking is neither abusive nor does it violate any law. In fact, the strategy was invented by credit card companies. So why not use it to your advantage?