How Do Tradelines Work?
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Your credit report shows a list of accounts that you’re responsible for. To credit industry workers, these are known as tradelines.
The tradelines you keep and how you use them help determine your credit score, so it’s important to know how these work when you want to move your score to the next level.
What Is A Tradeline & How Do They Work?
Unless you work at a credit bureau, you probably don’t hear the term “tradeline” thrown around very often. Tradeline is credit industry lingo that refers to the accounts shown on your credit report. These accounts can fall into one of three categories:
- Installment credit
- Revolving credit
- Alternative credit
Installment credit accounts encompass forms of credit with fixed monthly payments like a personal loan or a mortgage.
A revolving credit tradeline could be a credit card account or line of credit–something with a fluctuating payment and interest rate.
Alternative credit tradelines usually report rent, utilities, or other bills to the credit bureaus as a line of credit without actually extending credit to you. That means the accounts that wouldn’t normally be included in your credit score calculation are being included!
The best example of this is Experian BOOSTTM.
The way tradelines work is relatively simple. The tradelines on your credit report (and how you use them) all feed into the calculation of your credit score. Think of it like a report card where each tradeline is a different subject you’re being graded on.
It starts when you complete a credit application through a lender. This could be for a credit card, personal loan, or any type of trade credit.
When a lender approves your application, you’ll see the new account on your credit report once that new information is shared with the credit bureaus.
The credit bureaus need a record of your activity on that account to build out your credit score. That’s why the following details about your account activity are also reported to the major credit bureaus.
- Account type
- Balances
- Age of the account
- Payment history
- Credit limit or total loan amount
- Account status
- Monthly payment amount
Each of these factors plays into your credit score. The credit score you get is then used by a potential lender to determine how much you’ll pay to borrow money from them. People with bad credit tend to pay more interest than people with good credit.
How Do They Affect Your Credit Score?
Without tradelines on your credit report, a credit reporting agency can’t make the appropriate decisions about your ability to repay debts. That makes tradelines the most important source of data for credit bureaus and lenders.
According to the most recent credit score statistics, 26 million adults have no credit history. If you’re “credit invisible” or have a thin credit file, you’ll likely see a much larger impact on your credit score when you add a new tradeline.
The way tradelines affect your credit score depends on how you handle them. It also depends on the other types of tradelines and activity impacting your credit report.
According to MyFICO, 90% of top lenders use FICO credit scores to inform their lending decisions. This type of credit scoring model is also used by major credit bureaus.
To calculate your credit score, each tradeline on your credit report is analyzed according to the FICO credit scoring model:
- Payment History (35%): How often you make payments on time.
- Credit Utilization (30%): The proportion of your revolving balances to your credit limits.
- Length of Credit History (15%): How long your accounts have been open.
- Credit Mix (10%): The variety of account types in your credit history.
- New Credit (10%): How many accounts you’ve opened in the last 12 months.
To maintain and build credit beyond the initial boost of opening a new trade line, you’ll need to pay attention to how your tradeline use matches up with all of these factors.
Is It Legal To Add Tradelines To Your Credit?
There are legal ways and not-so-legal ways to add tradelines to your credit. The legal ways to add a tradeline to your credit report include:
- Getting a credit card or loan in your name
- Signing up for alternative credit reporting services
- Asking a trusted relative to add you as an authorized user to their credit card
These are all completely legal and will help raise credit scores when used properly. In fact, it’s suggested to have at least three revolving tradelines and one installment loan to see the best improvement in your score.
By adding tradelines this way, you’ll be able to reach an 800 credit score with the right credit management habits.
The dishonest way to add tradelines to your credit is by buying tradelines through a tradeline supply company. While it’s not formally illegal to buy a tradeline, the practice is not permitted by credit card companies in their terms of service.
It’s viewed as a deceptive practice or misrepresentation of your credit history. Why? Because you’re paying someone with an established credit card to add you as an authorized user to their credit card just to get a temporary credit score increase.
How Long Does a Tradeline Stay on Your Credit Report?
When you buy tradelines, the account only stays on your credit report for a month or two. Just long enough to process a new credit application. Then it falls off your credit report once the primary user removes you from their credit card account to host the next buyer.
That means that it no longer affects your credit score, and that it will probably go back down.
If you’re using tradelines the honest way, the tradeline stays on your credit report for as long as you keep the revolving account open or until an installment loan is repaid in full. So the credit score you see is your real one. Not a temporary ploy.
If you decide to close a credit card it will fall off your credit report as a current tradeline and stop contributing to your credit score. The same happens when you pay off an installment loan.
Alternatives for Improving Your Credit Score
Several alternatives can help you improve your credit score without buying tradelines. One that’s gained popularity in recent years is alternative credit reporting services.
Services like Experian BOOSTTM and BoomPay register bills like your streaming subscriptions, monthly rent, and utilities towards your credit score. It’s especially helpful for those who haven’t been able to build credit the traditional way.
Another alternative method to build credit is to get a credit builder loan. While several lenders offer these options, CreditStrong’s customers have seen some of the best results.
With no hard credit check, all you’ll need to do is choose which affordable monthly payment works for your budget to start building credit.
If you’re seeking out tradelines to resolve past credit issues, you could work with a reputable credit repair company to dispute incorrect information on your credit report. While it may take time, this method is effective for many people in this situation.
Finally, a secured credit card may also help you build credit. These credit cards cater to people with bad credit or a thin credit profile. You’ll just have to deal with a small credit limit and a security deposit until you qualify for an unsecured credit card.
Bottom Line
Overall, tradelines are the foundation your credit score is built on. The way you use your tradelines determines your credit score and how your potential lenders view you as a borrower.
No matter how you choose to boost your score, make sure your payments are always on time.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.
