How to Use Piggybacking to Establish Credit

by Lynnette Khalfani-Cox, The Money Coach on January 21, 2011

in Credit Scores

piggybacking to build credit


Q: “I am 29 and I just borrowed money from my bank to establish credit.


What else can I do to establish credit without hurting myself? I am not able to get any loans or hardly anything because of my lack of credit.”


A: I understand how it is to be young and trying to establish credit. So let me offer you a couple of tips.


One way you can certainly establish credit is to piggyback off someone else’s credit rating.


If you can get added as a co-signer or an authorized user on someone else’s credit card for example, that could bolster your credit rating.


You would be able to add that person’s credit history essentially to your own credit file.


Now, of course you would only want to do this with someone who has good credit not bad credit or so, so credit.


Do this only with someone with a great credit rating. And obviously you would want to do this with somebody you trust.


Another way though you can establish credit, if you have not been able to get a credit card or other loans, is to seek out the secured card.


A secured card is a credit card essentially but, what happens is that you put up a certain amount of money, say, $500, and you put it into a bank account.


The bank that issues you the secured credit card uses the $500 deposit that you have put on hold there as your credit limit. Then you make charges or purchases and then you pay those off at the end of the month.


So let’s say, you charged  $50 over the course of the first month. Then you would pay off the balance, and that would help establish your credit rating.


Now the key in picking a credit card issuer or bank that will offer you a secured credit card is to make sure that it’s an institution that reports to the three credit bureaus, TransUnion, Equifax and Experian.


There are actually a number of secured card issuers that don’t report to the credit bureaus. That’s not going to do you any good. You don’t want to go with one of those.


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Here’s a better way to improve your credit and make money with your own money. If you have a bank account with some money in it, say $500 that you don’t need right now, take that money and put it in a Certificate of Deposit(CD). Then take that CD and hand it back to your bank as collateral on a loan for $500. You make sure to set the maturity date of the CD the same as the end of your loan. Because a CD appreciates in value, unlike a car, your bank should loan you the money at a pretty low rate. This is because the condition of the loan will state that if you default the bank can cash out the CD and pay off the debt. Again since CD’s make money chances are your CD is worth more than the loan so you will still win as far as your credit goes because your debt is paid in full, but any extra interest it earned is taken by the bank. This way you create a debt, pay it off, and you get your $500 plus interest. Make money from your money.

Kimberly Brock

The most important thing you need to do (if you have monthly payments on your loan) is pay your monthly payments on time! And make sure this is being reported to the credit bureau. It will do you no good if it is not being reported. This will help your score grow!

Except with a spouse, I do not recommend anyone to “piggyback” off of someone else. Yes, it could indeed help your credit, until something goes wrong. Money can often ruin a relationship…quickly. In regards to spouses, this could also have a negative affect when one spends more than the other. Also, if one of the spouses passes away, the other will become responsible for the debt (any debt that is in BOTH names).

Life happens and either one of you may be tempted to increase the debt on a credit card because of an emergency and/or lose the ability to pay for the debt (trust me, I am talking personal experience here).

The suggestion for getting a secured card gets my vote. It allows you control, you can (re)build your credit and you do not have to worry about potentially ruining a good relationship.

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