Piggybackers Take You for a Ride

My grandmother, Big Mama, didn't like lending folks anything.

She wouldn't let anyone borrow her fancy church-going hats. To my knowledge, she never lent her car to anyone. She wouldn't lend money. And she especially wouldn't let people borrow her good credit name -- meaning she would not co-sign for a soul, not even me.

I used to think Big Mama was being mean. Sometimes people need help. But my grandmother was protecting herself.

Big Mama understood that when you lend something and it gets damaged, you are the one who has to deal with the aftermath. This is especially true when you let someone borrow the good credit history on your credit card by allowing him or her to become an authorized user. It's called piggybacking.

Routinely, people in credit trouble are advised that one way to rebuild their credit is to get somebody -- their mama, daddy, grandparent or friend -- to add them on a credit card as an authorized user.

Piggybacking, in most cases, is a great deal for the person trying to establish credit or get a boost to a badly bruised credit history, according to Jonathan Alper, a Florida bankruptcy and asset-protection attorney.

Treatment of authorized users can vary by card issuer. But generally, adding an authorized user to your credit card account lets the credit history of that particular card be transferred to the new user's credit files. Positive and often negative information on the card can be added to the authorized user's credit files.

The authorized user has your permission to use the card but no contractual responsibility to repay any of the charges on the card, including charges the user makes, according to Rod Griffin, a spokesman for Experian, one of the three major credit bureaus

Clearly, if people are trying to improve their credit history, they should be added to only an account in which the cardholder has had the card for a long time and used it wisely -- paid the account on time and kept balances low. That positive information can significantly help the authorized user's credit scores.

Piggybacking doesn't work in the reverse. The credit history -- good or bad -- of any unshared accounts of the authorized user has zero influence on the credit reports of the cardholder, according to Craig Watts, the public affairs manager for Fair Isaac Corp., which created the widely used FICO credit-scoring system.

Although authorized users can be chased down by creditors if the primary cardholder fails to pay, Alper said he sees far more examples of parents -- particularly elderly parents -- who allowed someone to become an authorized user and got left with their grown child's debt.

A lot of folks don't realize that in their effort to help a credit-challenged child, relative or friend, they put themselves at risk.

Here's an e-mail I recently received from a woman now burdened with a $2,800 debt because she let someone piggyback. She wrote: "I have a friend whom I added to my account as an authorized user. She transferred her debt from another credit card so that she could get 0 percent for a year and pay it off. A year passed and she is not able to pay it. Now she has decided to file for bankruptcy since she found out she is qualified. What are my options?"

The friend had transferred $3,500 to this woman's credit card and managed to pay only about $700 on the debt.

"It's like lending a car to a friend," Alper said. "If you loan out your credit card or car with permission and something happens, you are liable."

Alper said that if he were advising the e-mailer's friend (the one who is planning to file for bankruptcy), he would tell her to list the credit card and the friend in her filing because legally, the e-mailer can sue her friend for failing to pay the debt as promised in their oral agreement.

"I don't want to sue her," the e-mailer wrote back to me after I told her what Alper said. "I am going to pay myself and close the account. My husband is not happy, but I don't want a debt hanging on my account."

How sad.

If this story still doesn't discourage you from adding someone as an authorized user, at least take the following suggestion from Alper: Lower the credit limit on the existing card or get another card with a low credit limit. Set the limit to something you can pay if the authorized user can't.

And if you feel guilty about not helping someone build his credit, try this line Big Mama used on me: "If the bank, which has a lot more money than me, won't take a risk on you and give you credit, why should I?"

· On the air: Michelle Singletary appears on Washington Post Radio (107.7 FM, 1500 AM) at 6:20 a.m. Thursdays. She also discusses personal finance Tuesdays on NPR's "Day to Day" program and online at http://www.npr.org/ .

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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