The potential danger from piggybacking, and perhaps authorized-user credit accounts in general, is that its use might distort the quality of the signal that credit scoring provides.
QUESTION 2: CAN PIGGYBACKING MATERIALLY IMPROVE CREDIT SCORES?
The modest contribution that authorized-user accounts make, on average, to credit scores does not by itself imply that the score increases from piggybacking will be small, or that its effects on creditworthiness assessments will be immaterial.
The size of the potential score gains is important for gauging the dangers posed by piggybacking. If piggybacking has little effect on scores, or if the benefits are limited to a small portion of the population, then the harm that piggybacking might cause is small.
We approximate the characteristics of the type of account that might be available for piggybacking using values from the 90th percentile of the distribution for account age and credit limit, which translate into a credit limit of $15,000 and an account age of about 16 years.
Our simulation results suggest that piggybacking can increase scores significantly.
To assess the extent to which piggybacking can increase a person's credit risk profile, we divide the score range into four segments: sub-prime, near-prime, prime, and super-prime.
In contrast, people who are delinquent on an account remain so after piggybacking and therefore are less likely to benefit.
To evaluate how the potential score increases from piggybacking vary across credit records characteristics, we regress the simulated score changes on the number of tradelines on file, the utilization rate on revolving trades, the age of the oldest account on file, and the number of accounts that have been 90 or more days past due in the previous 24 months.
Indeed, for someone with two or fewer tradelines and a credit history of less than two years, the expected score increase from piggybacking will be around 20 percentile points.
One response to the threat piggybacking poses is to exclude authorized-user accounts from scoring models.