Is Piggybacking Credit Legal?

We explained in our last post what piggybacking credit is and how it works. This week I want to address a question that I get asked a lot. Is piggybacking credit legal?

People often confuse piggybacking that is fully legal and allowed by the FICO 04 scoring model. With seasonal trade lines which is highly illegal. In this post I am going to explain the difference

Piggybacking Credit

As discussed in the last week’s post, piggybacking credit means being added as an AU to someone else’s account. The trade line will be reported to the credit bureaus, helping you build credit. The reason why banks report AU accounts to the credit bureaus, and the scoring models count them in, is because they are legally obligated to do so.

The Equal Lending Act (12 CFR § 1002.6 (b) (6)) states the following: “In evaluating the creditworthiness of an applicant, a creditor shall consider the history, when available of accounts designated as accounts that the applicant and the applicants spouse are permitted to use or for which both are contractually liable.” In other words, scoring models need to count into their scoring models the history from any account of which the applicant is an AU, as long as the primary cardholder is the applicant’s spouse. The problem is that scoring models have no way of knowing if the primary card holder is a spouse or not. So for that reason, they will count in any AU account, no matter if it’s a spouse or not. (There are banks who won’t report AU accounts to the credit bureaus if they know that the primary card holder is not a spouse. In such a case, being an AU to a non-spouse account would not help you build credit).

Knowingly changing accurate information on your credit report in order to qualify for a loan which you’re really not eligible for, can be fraud.  But getting added as an AU to an account,even if you’re not really the primary card holder’s spouse, (or if you just paid a piggybacking credit company to add you to a good aged account) is not illegal. You did not do anything illegitimate, as the information that is being reported to the credit bureaus are 100 percent accurate. You’re being reported to be an AU on account number xxxxx. You never stated if this account is your spouse’s or not; neither did you specifically mention if you’re responsible for the payments or not. It’s not your fault that the scoring models decided to use this account to calculate your score. You never asked them to do it, nor do you need to know anything about that.

Seasonal Trade Lines

Different, though, are seasonal trade lines which are 100 percent fraud. You’re paying a company to create a false trade line which never existed and add it to your credit report. This trade line is being reported as a trade line which belongs to you and has x amount of history. But truthfully, this trade line never existed.

I hope this helps you understand the differences between Piggybacking and Seasonal Trade Lines. Let me just add this: I am not an attorney, so for any legal advice please consult a licensed attorney.

Have fun building credit!