In this Post:
- What is an AU and how does authorization work
- Joint Accounts vs. AUs
- More on Joint Accounts
- Becoming a Guarantor
- How AU May Increase Your Credit Score
- Fair Isaac & Company – FICO Scores
- FICO-08 Scores and AU Accounts
- Raising Your FICO Credit Score as an AU
- Some of the Good and the Bad with adding an AU
- Credit Score Boosting Tips
- Piggybacking: Aggressive non-approved method of selling AU
- Piggybacking Credit
Become an authorized user (AU) on the credit card of your parents, spouse, or friend and maximize the awesome impact on your credit score
What is an AU and how does authorization work on a credit card?
The practice of adding an AU to a credit card to help someone build credit or increase credit score has been around for a long time. It was originally most prevalent with parents trying to help their children build credit history.
Now it is also very common among spouses, for both convenience and for one spouse to help the other with their credit management. Even partners, other family members and close friends frequently make use of this valuable arrangement.
Though adding an AU to the card of an individual with great credit can be an excellent method for building credit and increasing the AU’s credit scores, it isn’t always effective, and shouldn’t be used in every situation.
When the practice moved into a profit making endeavor, the term piggybacking cropped up. This is very borderline activity and greatly frowned upon by lenders. Moreover, FICO and most card issuers began taking steps a few years ago to discourage and invalidate this practice for non-legitimate AUs seeking to defraud the card issuers with artificially elevated credit scores.
This is a very involved subject and to best explain all the ins and outs, and the pros and cons, it’s necessary to first explain some basics.
Joint Accounts vs. AUs
A Joint Account and an individual account with an AU are two entirely different credit card arrangements. Both set-ups can help build credit in a similar manner, but the legal liabilities are quite different. These setups cans impact how both parties’ credit may be impacted.
Both individuals on a joint account are responsible for the debt incurred. When applying for the card account, the credit of both parties is evaluated to determine eligibility, annual percentage rate, credit limit and other account terms and conditions. Both card holders are owners of the credit card account. They share the legal responsibility, privileges and accessibility. Any late payments, defaults and other card activity is shared by both individuals. Either cardholder can make changes to the account without the permission of the other. However, both parties are still legally obligated to fulfill the terms and conditions of the card and any changes made by either party.
If you have a credit card and add someone as an AU, you are and will remain the primary card holder. The privileges and responsibilities of your AU are limited – though this limitation does vary from one card issuer to another. Ultimately, as the primary card holder, you are the responsible party and the owner of the account. Only your credit history is reviewed when your card issuer determines your account terms and conditions, to include the APR, credit limit and any special offers.
Your credit card issuer will only turn to you to pay your card bills and hold you accountable for any account activity. If your AU runs up your card limit, the issuer will not require him to pay the bill: That falls to you. On the other hand, as the primary card holder, only you can make changes to your account. This can include limiting the amount of credit available to your AU, and removing the user from your card should you choose.
More on Joint Accounts
Joint accounts have various benefits, and building credit is definitely one of them. It does have more potential for complications than simply adding an AU to the account of someone with an excellent credit history.
You can create a joint account in one of two ways:
1. Apply together at the origination of the credit card account. This is fairly common with spouses and couples who have merged their finances and wish to apply for a new credit card. Another popular motivation for this is to help someone you trust get a better rate, build their credit and increase their credit score.
- For example, a college student may need a credit card for school expenses and has limited or no credit history. A parent or grandparent may be willing to apply for the card jointly so that the good credit history of the older individual has a positive impact on the card terms. And by allowing the younger family member to be an actual account holder, rather than merely an AU, he understands that he is responsible for paying the bills and hopefully learns good credit habits from this experience.
2. Change your individual account to a joint account by “re-applying” as joint account holders. If you already have had a credit card for a period of time and you wish to add another account holder, you will need to seek the approval of your card issuer. At that time, the credit histories of both applicants will be reviewed to determine acceptance. Again, this would be typical when you marry or merge your finances with your significant other. The benefit to the new account holder is an automatic credit history based upon your prior card history and usage.
Example: A woman has a credit card for five years with an excellent credit and payment history, a $10,000 card limit and a balance of only $1,000. She marries and her spouse has no credit history. They re-apply as joint applicants on the card. They are approved because the husband has nothing negative — just no history. But once he is approved, he has an instant history – the same as his wife’s. Now his credit report shows that he has had a credit card for five years with a low balance and a great utilization rate. Voila! Instant credit history.
Bear in mind that there are potential downsides for the original card holder. The most obvious one is the possibility of default or poor payment habits by your new joint account holder. This activity will significantly impact your credit score in a negative manner.
A second problem can occur if your relationship ends. Once your spouse or partner is on the card, he or she is essentially there for good. If the relationship is over, who’s to say your joint account holder won’t start running up the balance and failing to pay? Even if he maintains the card in good standing, if his other credit activity starts declining, this can impact your joint account. In cases such as these, the card issuer may decrease your credit limit or cancel the account altogether. Even if you both agree to close the joint account when the relationship ends to avoid these issues, the loss of this credit line will hurt your credit score, especially if you had a high credit limit and low utilization rate.
Despite its popularity among many couples, joint card accounts are discouraged. In fact, many banks which once offered the option of joint accounts no longer do so. Your credit score is a valuable commodity. In spite of all your best efforts, the actions of another individual can send it crashing down. The smart option is to remain in control of your own credit, on your own.
Becoming a Guarantor
Please note that there is a difference between a guarantor and a co-signer or joint account holder. A guarantor agrees to take over the card holder’s debt if the user fails to pay. With this arrangement, the guarantor usually does not have charging privileges on the account. This is often the case when a parent becomes a guarantor for a child under 21 who has limited or no income, but the parent wants the child to have a card for emergencies and/or to build individual credit. Many card issuers do not offer this option.
Bank of America does allow guarantors for applicants between the ages of 18 and 21. The card issuer also allows co-signers/joint accounts.
After the card holder has established a sufficient credit history and reliable income, you can both request to be removed from the card account as its guarantor. The card issuer will run a credit check to ascertain if the card holder qualifies to continue with the card account without a guarantor.
See Rules on Reporting Credit Card Household Income on Applications to learn more about how income affects applicants between 18 and 21 and those over 21.
How Being Added as an AU May Increase Your Credit Score
Let’s assume you have either no credit history or some dings on your credit report that have lowered your credit score. If you have a significant other, spouse, other family member or close friend with excellent credit and at least one long term credit card, you may be able to increase your credit score by becoming an AU on their card account. You actually get to “piggyback” on the credit of this primary account holder. In this way the good credit history for the primary card holder’s account is added to the credit history of the AU. Once this information is added to the AU’s credit report, it has the desired effect of building credit or increasing the AU’s credit score.
To understand how this works, let’s explain a bit about credit scores.
Fair Isaac & Company – FICO Scores
Fair Isaac & Co. (FICO) analyzes the credit history of consumers to determine credit scores, identifying what type of “risk” they would be to lenders. Your credit worthiness is tied to your FICO credit scores, ranging between 300 and 850. The company looks at a wide range of criteria to compute your FICO scores for mortgage lenders, automobile financing companies, and consumer credit card issuers:
- Your payment history
- Your debt
- Your utilization rate (which is the ratio of how much credit you have compared to how much money you owe)
- How long you’ve had credit
- Types of credit and lending accounts
- New credit/inquiries
This information is obtained from the three major credit reporting bureaus – Experian, Trans Union and Equifax.
FICO-08 Scores and AU Accounts
Originally, FICO used AU accounts when calculating your credit score. The account histories of these credit cards were reported on the credit reports of both the primary card holder and the AU, and FICO made no distinction between whether you were the AU or the primary owner on the reports. But with the increased popularity of “credit card piggybacking” and the outraged outcry from the lending community, FICO decided to make some drastic changes. With the introduction of FICO 08, the company announced they were going to stop including AU accounts altogether.
However, this too caused an uproar. This time from legitimate AUs, like children, partners, spouses and other authentic individuals who stood to lose out with their credit scoring due to the removal of their AU status from their credit history. For many this would send their credit score plummeting or even eliminate it completely.
In response, FICO compromised and devised a computation method that uses AU accounts in its scoring analysis, but still helps control credit score tampering. The company is very hush-hush about this exact formulation. However, reports show that this practice still helps the credit scores of most legitimate AUs.
Raising Your FICO Credit Score as an AU
When you become an AU on your spouse’s account, it’s added to your credit card report. If you are added to the account of someone else, like a parent or significant other, this credit card account may or may not be added to your credit reports.
The Equal Credit Opportunity Act of 1974 requires card issuers to report a spouse’s AU information. For other AUs, reporting is at the discretion of the issuer. If you aren’t the primary account holder’s spouse and want to be added as an AU to an account, contact the card issuer in advance to see what their policy is regarding AU report to credit agencies.
When the card issuer does report AUs, it typically reports the card usage, past payments and all aspects of the card history by the primary account holder on your credit report as though this history is part of your credit history. Your score is recalculated to reflect this “new” credit history and activity. This is how your credit score gets boosted.
- Credit History and back dating
- If the “new” card was opened far earlier than any you own, this gives you a much more established credit history. This is due to how the card history appears on the credit report of the AU. Typically, it shows up as though the AU has had the card for many years (showing the origination date that the primary card holder opened the account instead of when the AU was added.) This is called back dating and it is the desired method of reporting when you are an AU.
- Not all card issuers back date AU accounts. Some report the history only from the date the AU was added to the card account. This will not have the desired effect on your credit history.
- Average age of your cards
- If you already have two or three credit cards that are only a year or two old, adding this “new” card with a much older history will improve your average age.
- Utilization rate
- If your credit cards have low credit lines and you have used most of your available credit, your utilization rate will be fairly high – not a good thing. Now you add the “new” card to your credit history. Ideally it has a much higher credit line and a very low balance. This lowers your utilization rate immensely.
- When optimized, all three of these factors can increase your credit score by 100 points or more.
- Simply boosting your credit score is not always sufficient to qualify for other credit on your own. Card issuers will often look at additional factors as well to determine whether your score reflects your real credit history. In these situations, they typically like to see that you have other cards on your own.
Bear in mind that only the information about the card account that you are now on as an AU is reported on your credit history. No other credit information or history of the primary cardholder is added to yours. Likewise, none of your credit history is added to your primary cardholder’s credit report. Only the activity ( – good and/or bad) reflected on the card you have been added to will be added to both your credit reports.
Though not the only game in town, FICO is quite dominant in the market, and it may as well be the only one. It’s only competitor at this time is VantageScore. This credit scoring model is a venture created in 2006 by the three main credit reporting agencies. It too, uses a scale ranging from 300 to 850. VantageScore doesn’t use AU accounts in its credit scoring calculations and never has. Because creditors and lenders still don’t rely on a VantageScore when issuing credit, how AU accounts are dealt with here is inconsequential. We only mention it in case you have heard of VantageScore and wonder about its impact. The answer is: NONE.
Some of the Good and the Bad with adding an AU to a Credit Card Account
Clearly, there are two viewpoints on this topic: the card holder contemplating adding an AU and the individual seeking AU status.
Here are some points to ponder from the perspective of each one:
Primary Account Holder
As the primary card holder, you maintain control of your account. You can limit the card usage of the AU, and even have him or her removed from your account if and when you choose to do so. As a matter of fact, you don’t even have to provide your AU with a card. You can make her an AU “in name only” and allow her to do no more than merely reap the benefits of your good card credit history.
- Legal responsibility – As the owner of the account, you are liable for any charges on the card. This includes those made by your AU.
- Impact on your Credit Score – Any activity on your “shared” credit card account impacts the credit scores of both you and your AU. Therefore, if your AU behaves irresponsibly and you are unable to stay current on your bill due to this, your credit will suffer along with his. Additionally, running up a large balance damages your FICO score since it increases your utilization rate.
- Personal relationship issues – Money issues have destroyed many a relationship, be they with family members, friends, or lovers. Keep this in mind when contemplating adding an AU to a credit card. If things go wrong, the ensuing fallout may ruin your relationship.
- Increased credit score – Being added as an AU to the credit card of someone with excellent credit and a long history with the card can increase your credit score by 50 points or more.
- Experience as a card holder – Used correctly, AU status on the credit card of someone with good credit can teach you how to be a responsible account holder, to budget wisely and to experience the good habits of that individual – essentially, the reason she has excellent credit.
- Emergencies – This provides you with funds in case of emergency, should you ever be stranded somewhere without access to cash or other acceptable currency.
- Convenience – A credit card means you don’t have to carry around large amounts of cash, and it allows you to keep track of your spending.
Negative impact to your credit – If the primary card holder doesn’t pay on the card, makes late payments, maxes out the card or behaves in any other negative manner with this credit card, it will directly impact your credit. You would need to remove yourself from the card immediately. However, since you don’t have any control over the account, this could pose a problem.
Credit Score Boosting Tips
When adding your spouse, partner, family member or friend as an AU to credit card accounts, there are some tips to help ensure your AU is maximizing the opportunity to increase his/her credit score.
1.The card issuer will be reporting the card on your AU’s credit report:
- All major card issuers have some type of reporting procedure – you need to determine what it is. If you have a card through a very small bank, you need to confirm that the account will be reported for your AU.
2. The card issuer requires your AU’s social security number:
- This is a sign that this info will be reported on the AU’s credit history. Without an SSN, the information may still be reported if the AU has other cards and the same address the primary card holder. If not, the credit agency probably won’t be able to locate the AU and therefore, nothing will be reported.
Therefore, it is very important to ensure that the AU’s SSN is reported to the credit lender. This way, it’ll be reported to the credit agencies, and a new file can be opened for the AU. If the issuer backdates the information, the AU has an instant impressive credit history.
3.The card issuer ask for the AU’s address:
- Without this information, the issuer will report the card tied to the primary card holder’s address, even on the AU’s credit report. If it’s different from your AU, such as your child living away from home, two addresses will appear on the AU’s credit report. This can be a problem if your AU doesn’t have any credit history of his own because when your AU tries to apply for a card of his own, there will be a conflict of addresses. This leads to a non-instant approval application and a subsequent review by an actual person, who will look much more carefully at the history than a computer. This means the reviewer will notice the AU’s non-existent individual history, and may decline the application based on this.
4. The card issuer backdates the card to when you originally opened the card account:
- The card issuer that backdates offers the best credit boosting option for your AU.
- American Express’s doesn’t backdate AU’s cards. Instead, your credit age may be reduced when adding an AU to your account, since the new users credit age will be figured into the primary card holder’s credit age average.
Piggybacking: Aggressive non-approved method of selling AU spots to boost credit scores
When discussing the practice of adding an AU to a credit card to increase credit scores and help build credit, the discussion wouldn’t be complete without a description of the more aggressive piggybacking practice.
Piggybacking credit uses the process of adding someone as an AU on the credit card account of a primary cardholder with excellent credit for the sole reason of building credit or increasing the AU’s credit score. Another distinction is that the AU and the primary cardholder frequently don’t even know each other, let alone have a personal relationship.The entire “transaction” is one of profit.
Prior to 2007, this practice became a popular scheme for credit repair companies. They capitalized on the loopholes available at the time to artificially boost the credit scores of consumers with bad credit. They charged these consumers fees to add them as AUs to the credit cards of strangers who were purported to have excellent credit scores and a great credit history on the cards to which they were added. Once their credit scores were falsely elevated, these individuals were then able to apply for and qualify for loans and credit, with interest rates they previously would have been ineligible for.
The consumer AUs never actually received or used the credit cards for the accounts they were added to. Cards for AUs are sent to the address of the primary card holders and AU’s don’t have privileges on the accounts to change the shipping addresses.But access to the card account was never the motive anyway. “Fixing” their credit through this temporary arrangement was the only motivation.
After the housing crisis, lenders expressed outrage at the practice, complaining that many of their loans were the result of these fraudulently inflated credit scores. As noted above, in response to the ensuing uproar, Fair Isaacs & Co. proposed a change to the way FICO scores dealt with AU accounts. They initially proposed a change through FICO 08 wherein no AU accounts would be included on credit reports and the resulting credit scores.
However, the Equal Credit Opportunity Act requires lenders to consider all accounts that spouses are permitted to use together when determining the credit worthiness of an applicant. Additionally, the card issuers don’t actually frown on legitimate AU accounts – where the primary cardholder has a personal relationship with the AU. Nor did they wish to penalize these individuals by removing years of good credit history with the removal of their AU accounts from their credit reports.
So Fair Isaacs went back to the drawing board and came up with a mostly secret algorithm devised to identify and reject fraudulent, for-profit AU accounts, while allowing legitimate AU accounts to remain on the user’s credit report, which is essentially where we still stand today.
Many consumers wonder whether becoming a piggybacking credit card AU will still work to fix credit, and if piggybacking to improve a credit score is even legal.
Certainly, piggybacking credit repair has fallen out of vogue and it has become far more difficult for piggybacking credit card companies and consumers to use this tactic as much as they used to be used. However, where there’s a will, there’s a way. In many instances, a consumer with bad credit probably has a girlfriend or boyfriend, or at least one personal friend who would be willing to help by allowing his friend to piggyback on his credit card account as an AU, thereby helping improve his friend’s credit.
There are still companies offering piggybacking to raise your credit scores and many consumers are still actively piggybacking for better credit. However, results are usually disappointing and short-lived at best. The practice itself is borderline illegal.
A clear discussion of this topic is the following statute from the Credit Repair Organization Act:
No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
A credit repair company charging a consumer to add him to someone’s card account as an AU in order to “repair” his credit would be in violation of this statute.
Mortgage lenders have also strenuously expressed the belief that piggybacking to increase credit scores is a form of fraud, which is defined as follows:
To obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of a financial institutions, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years or both.
Though obviously not clear cut, there’s enough evidence to suggest that piggybacking to falsely hike up your credit score through a for-profit credit repair company isn’t a practice totally above board. Moreover, with the changes FICO 08 has made in respect to “non-legitimate” AU accounts, it hardly seems worth the effort to even risk it.