I see it all the time.
People want to help a partner, adult child or friend in financial trouble. Or they want to assist someone in building a good credit history so he or she can rent an apartment or buy a home. So they lend someone their credit card.
Nearly half of current or former credit cardholders say they have let someone else use their credit card, according to a new survey by CreditCards.com.
And it doesn’t end well for a lot of these folks. In fact, 35 percent of survey participants suffered negative consequences. People overspent on their card (19 percent), they weren’t repaid (14 percent) or their card was lost, stolen or never returned (10 percent).
“You really are playing with fire when you let someone else use your credit card, so proceed with caution,” said senior industry analyst Matt Schulz for CreditCards.com. “Whether they spend more than you anticipated, don’t pay you back or you never see the card again, ultimately, you are the one who is responsible.”
Why would people hand over their credit cards?
Brad Klontz, founder of the Financial Psychology Institute told CreditCards.com: “My guess is that a large segment of those individuals are financial enablers. “In an attempt to help somebody, they either loan them money or support them in some way that ends up hurting themselves. And it’s probably feeding some financial dependence or money disorder on the other side.”
Ever hear about credit card “piggybacking?”
This is a credit building strategy that involves letting someone become an authorized user on your credit card. People with no credit or bad credit are sometimes 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 can be a good deal for the person trying to establish credit or get a boost to a badly bruised credit history. The authorized user benefits from the positive credit history of the primary cardholder.
But here’s the problem: The person piggybacking on your good name isn’t liable for paying any of the charges he or she makes on the card. You may have an agreement, but that’s just between you and the person who has the card. If he doesn’t pay, the creditor comes after you. I’ve seen plenty of parents and grandparents, who allowed an adult child to become an authorized user, get stuck with the debt. It’s ruin relationships.
In one case, a reader emailed that she added a friend to her credit card as an authorized user. The friend transferred $3,500 in debt from a credit card she owned to take advantage of a zero percent interest offer for a year. The year went by and the woman only managed to pay down $700. And then the piggybacking friend filed for bankruptcy.
The primary cardholder ended up having to pay off the balance of $2,800.
There is a negative side to this strategy. The primary cardholder could fall into financial trouble and start making late payments and that negative information can end up on the credit record of the person piggybacking.
I’m not a fan of piggybacking. People mean well but things happen. Don’t lend your credit card to someone because it may end up ruining your good name.
From CreditCards.com read: The good and the bad of credit account ‘piggybacking’
From NerdWallet: Credit Piggybacking: Can It Help Your Credit Score?
Color of Money question of the week
Have you been burned after lending your credit card to someone? Send your comments to firstname.lastname@example.org. Considering that I’m asking you to out yourself, this week you can respond by using just your first name and I still would like to know your city and state. In the subject line put “Credit Card”
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When is it okay to lie to save money?
Last week for the Color of Money Question I asked: Have you lied to save money?
Lois from Boston wrote, “I share my Amazon video and music accounts with my son and his family. They share their Netflix account with me. Though we’re close relatives, we don’t live in the same household. Frankly, I don’t consider this lying. Providers of streaming services price their products, and limit the number of devices that can use them simultaneously, with this type of “unauthorized” sharing in mind. Given that practice, I feel justified in declining to subsidize a very disingenuous business model.”
“I did I used my cousin’s military discount to buy an oven,” Na in Clinton, Md., wrote.
“When I was 20, I listened to a graduation keynote speaker whose main message was to convey to the graduates the benefits of living a life of honesty and playing by the rules,” wrote Tom Wingfield of Las Cruces, N.M. “Life is so much simpler and more fulfilling if you don’t have to worry about getting caught or have to try to remember what you said to whom, wrote on an application, etc. You can always fall back on the truth. Before you realize it, you’ve lived a life where you’ve inadvertently become a good example for your children and grandchildren. Don’t worry about what some other people may think they are getting away with because, over a lifetime, honesty is the best policy economically.”
Color of Money columns this week
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Please note it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages thoughtful and civil conversation. I want my newsletters to be a safe place to express your opinion. On sensitive matters or upon request, I’m happy to include just your first name and/or last initial. But I prefer not to post anonymous comments (I do make exceptions when I’m asking questions that might reveal sensitive information or cause conflict.)
Have a question about your finances? Michelle Singletary has a weekly live chat every Thursday at noon where she discusses financial dilemmas with readers. You can also write to Michelle directly by sending an email to email@example.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read more Color of Money columns, go here.