Piggybacking On Spouse's Credit Card

There are four reliable tactics to increase your credit score. First, pay your debt accounts on time. Second, reduce the amount of credit you are using (do not "max-out" your accounts). Third, diversify your portfolio of credit accounts, which the credit reporting agencies refer to as tradelines. Finally, leave your oldest credit account open because it sets the baseline for your credit history. I will discuss each of these below.

As you mentioned adding your name as an authorized user on your spouse’s credit card. If, as you mentioned, your spouse has strong credit, your being an authorized user on an account with a healthy credit history will boost your score. This is called piggybacking.

Piggyback Credit

Before 2007, authorized users got the benefit (or harm) from that account’s history. If a particular account's history contained on-time payments and low account balances and a long history, the authorized user got the benefit of that strong history. Conversely, if an account was rife with late payments and high balances, the authorized user’s credit score was damaged.

In 2007, Fair Isaac Company, the creator of the FICO score, reversed the long-standing policy of counting piggybacked accounts on an authorized user’s credit score. In 2008 Fair Isaac reversed the 2007 policy, and then in 2009 it announced another refinement when it rolled out FICO 08, the latest edition of its scoring algorithm.

The FICO 08 press release reads in part, "FICO 08 helps lenders protect against authorized-user account ‘piggybacking’ by incorporating new patent-pending technology that materially reduces the potential score impact associated with the abuse of authorized user accounts. By considering authorized user accounts in score calculations, FICO 08 continues to support lenders’ abilities to comply with federal regulations."

In other words, if a potential lender is using FICO 08 software (the current version today), and it encounters a consumer who is an authorized user on a spouse’s seasoned and good-credit credit card, that user will get a boost in their credit score. On the other hand, if a potential creditor is using FICO 08 software and it encounters a consumer who is an authorized user on a seasoned and good-credit credit card owned by a non-spouse, that consumer’s credit score will not be boosted.

Five Factors That Create a Credit Score

Piggybacking is not a panacea. Piggybacking will help a person with weak credit at no cost to the spouse with strong credit. But piggybacking is one tactic in a multi-pronged approach to increasing credit score. There are five variables Fair Isaac & Co., VantageScore, and Plus Score look to when calculating a person’s credit score.

1) Payment history

Counts for approximately 35% of your score. Payment history is the most heavily weighted factor used in calculating your credit score. Paying your bills on time consistently has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.

2) Total debt and total available credit

Counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed-out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.

3) Length of positive credit history

Counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.

4) Mix of types of credit

Counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.

5) The number of new credit applications completed recently

Counts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.

Recommendation

Here are four steps you can take to improve your credit score:

1. Pay off all debts and keep revolving lines below 25% utilization (and certainly don’t "max out" any loans or cards)
2. Get a small store card or gas card or credit card and make payments every month (this will help you re-establish a track-record of positive payment history)
3. Get your credit report from AnnualCreditReport.com and dispute any inaccurate information so that it can be corrected by the credit reporting agencies.
4. You have nothing to lose by piggybacking on your spouse's strong accounts.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com