Does Adding Someone to Your Credit Account Help Their Credit?

It can be hard to watch a loved one struggle to regain credit footing after amassing debt, especially on the heels of unforeseen circumstances such as losing a job or undergoing expensive emergency medical care. Adding someone to your credit account may seem like a quick fix to help address her credit problems, but there are risks involved, and changes to previous FICO credit score calculations may render the financial move worthless.

Credit Scores

Your credit history provides a financial barometer of your ability to manage credit. Lenders evaluate your credit history looking for positive signs including on-time payments, maintaining low debt balances and accumulating a diverse array of credit options. These include revolving credit, such as credit cards, and installment loans such as student loans, car payments and auto loans. People with credit problems might have missed payments, high debt-to-income ratios, bankruptcy records or accounts that were turned over to collection agencies for non-payment. Before qualifying for new credit cards, apartment rentals or home loans, these consumers will need help with their credit.

Piggybacking

Adding a risky credit consumer to a strong credit holder's account is known as piggybacking. This involves adding an individual as an authorized user to your credit account, immediately lengthening his credit history (if you've held the account for awhile), boosting his available credit and perhaps diversifying his credit portfolio. Your track record of on-time payments, payments made in full on credit balances and otherwise long-term positive standing now apply to the account's new authorized user, helping his credit.

Swinging Pendulum

Perhaps the most common credit score formula, the FICO score, underwent a series of changes to its views on piggybacking between 2007 and 2008. Prior to 2008, it was perfectly acceptable to add someone to your credit account to help her credit. Consumers could pay thousands of dollars to credit-improvement firms to have their name added to a stranger's account for a credit boost. As part of the FICO 2008 credit score model, however, this option was dropped because of concerns that adding risky consumers to strong credit accounts made the formula less legitimate, especially because of fraudulent use. The model was adjusted to once again take this practice into consideration when formulating scores. Some formulas, including the VantageScore model, have never taken authorized-user accounts into consideration.

Risks

Adding someone's name to your credit account to help her credit is not without risk. Authorizing another cardholder means that the individual could conceivably use your credit to rack up debt for which you'll be financially responsible. If you've added someone's name to a rarely used account and are unaware that she has charged purchases to the account, this could result in missed payments and injury to your own credit.