Definition
Piggybacking, or credit renting is the practice of allowing access to seasoned trade lines to authorized users to help artificially boost their credit scores.
Analysis
Piggybacking is a nearly obsolete practice that came to height from 2005 to 2007. However, piggybacking was to be halted in September 2007 when Fair Isaac had scheduled to phase in upgrades to credit scoring models at the three main credit bureaus.
These upgrades, known as FICO 08 will completely ignore aurhorized user status in calculating credit scores. Although these updates were delayed, their arrival in 2008 will mark the end of this practice.
The practice of piggybacking is technically legal. However, many mortgage providers shun the practice as a loophole that allowed cheating and threatened the entire mortgage industry.
Piggybacking refers to the act of allowing an individual to be listed as an authorized user on a seasoned credit card account. This previously resulted in the positive account also being listed in the credit history of the authorized user. Not all creditors reported authorized user status to credit bureaus, which limited which credit card accounts could be used.
Third-party companies began assisting in this practice by brokering such a relationship between holders of seasoned trade lines and those with no credit or bad credit. Authorized users would not actually receive a credit card that accessed a stranger’s account. Instead, the individual would simply be listed on the account as an authorized user and the account holder would agree to destroy any card with the authorized user’s name listed.
As a result of piggybacking, many mortgage applicants received favorable rates that exceeded what they could have qualified for. Piggybacking allowed for substantial and artificial boosts to their credit scores, which measure the mortgage applicant’s creditworthiness. Some applicants were able to increase their credit scores by 50 points or more by leasing a seasoned trade line.
