In this borrowing scenario, instead of the bank assuming the risk of lending money, the other signatory shoulders most of the burden. Many a well-meaning co-signer has been burned by flibbertigibbets -- children, friends, boyfriends and other assorted associates whom they thought, mistakenly, would pay back the loan.
"If the primary borrower defaults, it will show on the co-signer's history and the lender is going to go to the co-signer expecting payment," says Cunningham.
"Frankly, on the other side of that coin, one of my recommendations is for people never to co-sign. It has to be on the table in this case," she says.
Try 'Piggybacking'Similar to co-signing, piggybacking has attracted plenty of controversy, though for different reasons.
The term refers to the practice of using someone else's good credit as a way of building up your own.
For instance, if a mother adds her daughter to her credit card as an authorized user, the credit card company will not check the daughter's credit history and the daughter, as an authorized user, assumes no obligation for the debt, but the credit card company will report the account on the daughter's file.
"It's not necessarily a positive way of doing it. Some lenders view that as being a little bit sneaky -- especially if you do it with someone that you don't have a defendable relationship with -- (like a) father and son, (or) husband and wife," says Ulzheimer. "That is a different story than two complete strangers that are doing it. Lenders take a dim view of that."
How could a stranger be an authorized user on another stranger's credit card account? The phenomenon is a byproduct of our capitalistic system.
"The unscrupulous got ahold of the idea and started charging people with poor credit a fee to be added on to a person who has good credit. I am certainly foursquare against that, but as far as the legitimate use of piggybacking, I don't have a problem with it," Cunningham says.
The practice was due to be banned -- at least as far as the benefit to credit scores -- in the updated FICO '08 scoring model. However, the change did not end up in the final design, so legitimate authorized users continue to benefit from the system.
Use alternative credit scoresIn 2004, FICO introduced the Expansion score as an alternative to the classic FICO score to reach the unbanked market. It uses alternative payment data to compile a score for consumers.
"Instead of relying on one credit bureau's information, the Expansion score instead pings a number of small specialized credit bureaus that keep track of fairly interesting things -- but those things are usually not something that consumers are aware of being tracked by credit bureaus," says Watts.
For instance, the kind of information included could be gym memberships, payments to utility companies, or rental payments to a landlord or apartment management company.