Piggybacking's just one step en route to a better credit score
Dear Credit Score Report,
Jeremy, my wife and I are building a home soon. To get approved for a loan, our credit scores need to be in the 700s. Right now, we are around the 630 to 660 range. Would it be a good idea to "piggyback" with my parents on their existing credit cards to bump up our scores? How much can one's score rise, and is it still legal to use parents as users on a card? -- Chad
On the path to improving your credit scores, becoming authorized users is a good idea, but piggybacking should be the final step in the process -- not the only step.
Based on your current credit scores, Chad, you and your wife both appear to be suffering from poor credit histories. That means you need to look over your credit reports for negative items that are lowering your FICO scores. While some of those damaging items possibly could be the result of errors, the fact that your scores are so low mean the blame likely lies with you and your wife.
Experts say such self-evaluation is the most effective way to strengthen your credit. "In order to improve credit scores as quickly as possible, the person needs to address the things that are most affecting them personally," says Rod Griffin, director of public education with credit bureau Experian.
To identify those personal stumbling blocks, look over your credit reports from each of the major credit bureaus. (If you need fresh copies, you can request free credit reports every year.) I have a feeling you'll find at least one area in need of improvement:
- Bill payments. Making on-time payments to your credit card issuer and other lenders is key to a solid score. Need proof? In 2009, FICO said one 30-day late payment can lower a FICO score of 680 by up to 80 points.
- Debt levels. Aim to keep card balances and other debt levels as low as possible, ideally paying off your loans entirely, since a maxed out credit card could trim that 680 FICO score by up to 30 points.
- Account changes. Opening and closing card accounts can also tweak your credit score. For one, FICO doesn't look kindly at someone who applies for too much credit in too short a period, though there's no concrete answer to how much is too much. On the flip side, closing too many accounts can also hurt, leaving you with too much debt compared to your available credit -- called the utilization ratio.
The experts recommend focusing on those areas. "Reducing your existing debts, catching up on late payments and then making all of your payments on time are the keys to rebuilding and then maintaining strong credit scores," says Griffin.
Of course, you and your wife may not be the only ones who've made mistakes. That's why you need to address damaging errors -- perhaps made by your banks or the credit bureaus -- that could show up on your credit reports. (If you spot such errors, get them removed by contacting the information provider and the credit bureau, as outlined in a previous column, "Decade-old credit mistakes shouldn't appear on your report.") If you can find out which bureau report and score your lender uses, you can focus your initial efforts on correcting that credit history, rather than trying to change all three reports at once.
While improving your borrowing behavior and fixing credit report mistakes are both necessary, don't expect your credit scores to recover overnight. "The length of time it will take to improve the credit score depends on the person's unique credit history," says Experian's Griffin. "The more serious the credit problems and the longer the history of poor credit management, the longer it will take to improve the credit scores."
Your parents, meanwhile, may already have their own lengthy credit histories. If they aren't responsible cardholders, piggybacking on their accounts won't help -- and could even hurt you. "If you've been added to a card that has been paid late, shows higher utilization than your own cards or has not been open long, your scores may drop after being added as an authorized user," says Barry Paperno, consumer operations manager at myFICO.com.
However, assuming your parents do have favorable borrowing records, you can have them list you as authorized users on their credit card accounts to extend your credit history. While adding a family member to a card account is legal and can help your relative's FICO scores, so-called "pay to piggyback" credit repair schemes -- in which you pay to be added on a stranger's credit card account -- aren't recognized by the newest FICO scoring model. Additionally, such credit repair schemes cost you money that could be better spent paying down your existing debt.
Luckily, though, since you've got relatives who can help, you don't need to consider paying to piggyback. If your parents are prepared to add you as authorized users on their cards, just make sure their banks will report those authorized accounts to the major credit bureaus. Otherwise, you won't see any scoring benefit.
Once you've done everything you need to accomplish your goal, be patient, since it may still take a while for you and your wife's credit scores to catch up. As with home construction, it's necessary to create a solid foundation before your credit scores can be built upward.
See related: Help for bad credit, Cardholders' mistakes can bring down authorized users' credit score, FICO reveals how common credit mistakes affect scores, Free credit reports: How to get the actual free one, Decade-old credit mistakes shouldn't appear on your report, How new credit score formula will affect you, The good guys of credit repair, When refinancing, closing credit card accounts can cost you
Meet CreditCards.com's reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- What everyone should know about credit reports and scores – For my final CreditCards.com column, I've written a letter to readers that summarizes what you really need to know about credit scores and reports ...
- Why closing a credit card can damage your credit – After the bank hiked the annual fee on his credit card, a reader reacted by closing the account, which lowered his credit score. Our expert explains why that happened ...
- Jeremy M. Simon's 3 favorite credit scoring questions – For my 100th column addressing reader questions on credit scores and reports, I've taken a look back at some of emails that most surprised, challenged or amused me ...