A tradeline is defined as a credit account that appears on your credit report. Everything from your credit cards to your student loans to your mortgage counts as a tradeline.
To familiarize you with tradelines, we’ll walk through some of the terminology you may see used.
There are a few different types of tradelines: Revolving tradelines are accounts like credit cards and lines of credit, while installment tradelines are accounts like loans and mortgages. One handy way to remember the difference is that you pay back loans and mortgages in installments.
Tradelines contain information that credit reporting agencies use to discern the health of your credit. Here’s what’s included in a typical tradeline:
Account ownership is an important consideration in how credit agencies weigh tradelines. There are four different ways to define account ownership:
Credit reporting agencies give the greatest weight to the first, second, and fourth types of accounts, and less weight to the third. (More on authorized users later.)
If your accounts show on-time payments, low balances, and/or responsibility with credit obligations, then your tradelines will reflect that and, most likely, your credit score will be high. The more tradelines there are reflecting positive information, the better your credit score will be.
When credit reporting agencies assess your credit score, they look at the information for each tradeline. If a tradeline is affecting your credit score positively or negatively, they may look more closely and adjust based on the circumstances.
For instance, if one of your tradelines is a credit card that you’ve maxed out, the overall impact to your credit score may be less if that credit card carries a $2000 balance than if it has a $12,000 balance.
By and large, having a lot of tradelines generally helps your credit score. That’s because credit reporting agencies heavily factor in your credit utilization ratio—essentially, the ratio of the debt you currently have to the available balance on all accounts.
However, having too many tradelines can work against you, especially if you’ve maxed out some or all of those accounts, or if credit reporting agencies feel like you’re carrying too many tradelines.
There are a few ways you can build good credit by adding tradelines that are already “seasoned.” A “seasoned” account is defined as one that has been open for at least two years.
One way is to be added as an authorized user to a preexisting account. Authorized users are individuals like spouses or family members who may utilize lines of credit but are not ultimately responsible for paying off balances. Many times, parents will use this trick to help build their children’s credit scores.
Unfortunately, because credit reporting agencies keep their metrics close to the vest, the actual amount of tradelines you should have open to score best on a credit report remains a mystery. Ideally, best practices involve keeping balances low, paying them off on time, and keeping old accounts open—especially if they’ve been in good standing. Even better, you should try to use the credit now and then to keep the accounts active. Experian, for example, removes accounts that are in good standing but inactive after ten years. (Fortunately, they do the same for accounts in bad standing after seven years.)
Some individuals seeking to boost their credit score look into buying tradelines to add to their credit profile. This practice, perhaps better known as “renting” tradelines, involves paying a third party, often referred to as a “tradeline broker,” to connect you to someone else’s tradeline, often as an “authorized user.” Authorized users are individuals who have no obligation to pay the balance on an account. (Think of a teenager who has been added to their parents’ credit card account to boost their credit score.)
In an ideal world, the method of purchasing tradelines from a broker would increase your credit score, essentially by hitching your credit profile to the coattails of someone else’s account that is in good standing. Additionally, you’d also reap some benefit from having additional tradelines in your account, since credit reporting agencies generally (though not always) favor individuals with more tradelines over fewer.
The reality is not so simple. In the first place, there’s potential for you to be defrauded by the business from which you purchase the creditline. Basically, when you pay a third party to add a tradeline to your credit report, you have no way of knowing whose account it is, nor what shape the account is in, which means you have little way of knowing how that account will affect you. It’s taking a big risk.
A little research into the company you’re buying from could address these concerns. However, there’s also the fact that good tradelines—that is, “seasoned” ones, defined as an account that has existed for more than two years—are going to be expensive to purchase.
That’s not to say that buying cheap tradelines is worthwhile, however. In fact, doing so may even wind up hurting your credit score, as credit reporting agencies don’t like to see too many new/unseasoned accounts.
But most importantly, there are numerous reasons why purchasing tradelines—even seasoned ones—to boost your credit score simply won’t work. For starters, as this practice has expanded, credit agencies have gotten wind, and have started kicking off excessive AU (authorized user) tradelines from consideration. Close observers of the behavior of credit reporting agencies have reported seeing credit scores freeze when the number of AU accounts passes a certain threshold.
It’s even been demonstrated that those already with bad credit may suffer worse from bringing on tradelines that increase their overall debt obligation.
Additionally, the FICO Score 8, currently the most commonly used credit score that lenders look at, now includes technology that reduces the impact of buying tradelines by delineating between legitimate authorized user accounts and those that were purchased for the purpose of increasing credit scores.
There’s also the possibility that the score you’ve attached yourself to works against you. Suppose that the account owner misses a payment; that negligence could ding your credit score by as much as 80 to 100 points.
Finally, and perhaps most importantly, this practice exists in a murky gray area, and could be considered illegal. For example, Experian has said that by purchasing tradelines, “you could be falsely representing your creditworthiness to potential lenders.”
There are legal and legitimate ways to add tradelines, the primary one being to add yourself as an authorized user to a family member’s credit card account. However, this method of increasing your credit score is not perfect. As we’ve discussed elsewhere (hyperlink to “How tradelines affect your credit score”, accounts for which you are the sole and individual owner weigh most heavily in your credit profile, followed by joint accounts and cosigner accounts.
Ultimately, it’s still better than purchasing tradelines from some tradeline broker who, in the words of Mick Foley, might be living in a van down by the river.
