Tradelines are a type of credit history that lenders use to help them decide whether or not to extend credit to a borrower. Tradelines can be either positive or negative, and they can come from a variety of sources, including credit cards, loans, and utility bills.
When considering a new credit application, such as an auto loan or refinancing student loans, a financial institution will typically look at a borrower’s tradeline history. So it’s important to have a clear answer to the question “What are Tradelines?” and how they can impact your ability to get approved for new lines of credit.
What are Tradelines?
Tradelines are credit lines provided to you by financial institutions. The three major credit bureaus consider all accounts listed on someone’s report as tradelines.
So every time you make a purchase and don’t pay in full, a tradeline is opened and added to your record as soon as the lender reports that new information to the credit bureaus.
Two examples of so-called “revolving tradelines” are credit cards or home equity credit lines.
“Revolving tradelines” describe how much money you can borrow at any time. You can either pay off your balance every month in full or carry a balance and pay interest on it, depending on the terms of the agreement.
And then there are the so-called “installment tradelines.”
An “installment tradeline” is when you borrow a lump sum of money and then pay it back with fixed monthly payments.
This information is then added to your record, and every time you want to get a new credit card or need a car loan, the lender will get a report with all your tradelines.
In this report, the future lender will see information such as:
- The account type
- The name of the lender and his address
- The current balance of each account (or credit limit)
- The date when you opened or closed the account.
- The type of the loan
- The minimum payment you have to make.
- The account status, so if you are current or delinquent.
- The history of your payments
- And if you are the account owner of an “authorized user.”
All of this information is important to the lender because it helps him to assess your creditworthiness. The report also includes any late payments, collections, or bankruptcies.
The sum of your tradeline reports is then used to calculate your credit score. That explains why tradeline reports are important for getting a great credit score.
What are Authorized User Tradelines?
As we have seen before, the tradeline report will also indicate if someone is the account owner or just an “authorized user.”
An “authorized user” is someone who has gotten permission from someone to use their credit card.
Family members, close friends, or business partners often do this. For example, parents may grant their children access. Or a business may grant access to several company employees.
But actually, everyone can be an authorized user of someone else’s credit card.
As a result, the primary account holder retains responsibility for any payments, while the authorized user is not liable for any debt.
And while authorized users are not responsible for the payments, their own credit records will show that they are an “authorized user” on another account.
In other words, their credit report will create a new “Authorized User Tradeline” for the account to which they have been granted access.
Why is this a great advantage? Well, these authorized user tradelines can significantly impact your credit score. And this can have a positive influence on you when you apply for a new loan or get lower interest rates.
But how does this work? Well, let’s read on in the next section.
How do Authorized User Tradelines work?
To put it simply:
- Someone grants you access to his card account.
- You become an authorized user as soon as the information gets to the credit bureau. This information will show up on your own record.
- Your credit score goes up ( if the account is in good standing).
But let’s break it down in detail and see how this works.
1. Someone grants you access to their credit card account
As we have seen, everyone can grant you access to their accounts. It does not have to be a family member or business partner.
So you can actually pay someone to become an authorized user on their account. This is known as a credit card tradeline. They do not have to give you a credit card, so you will not be able to make any purchases. But this information will show up in your credit record.
Of course, the person must have good credit. Otherwise, his bad credit will also negatively impact your scores.
The primary account holder simply needs to contact his bank or credit issuer. A credit report is not required to add someone as an authorized user.
2. You become an authorized user as soon as the information gets to the credit bureau. This information will show up on your own credit report
Once you have agreed with someone to be an authorized user on their account, it usually takes anywhere between 15 to 45 days until this information gets to the credit bureau.
3. Your credit score goes up
Once you become an authorized user on someone else’s credit account, their good standing and credit score become your good standing and credit score.
That is why it is critical to ensure that the person becoming an authorized user on your account has good credit. A good score will help you qualify for loans, lower interest rates, and even rent an apartment.
Your score may also go up because you now have a more extensive line of credit. And your percentage of credit use went down—and your score went up.
So if you’re thinking about becoming an authorized user, be sure to do your research and choose someone with good credit. It could mean the difference between your financial success and failure in the future.
How do Tradelines affect your credit?
Tradelines can significantly improve your credit score. For many, this has become a very effective way to get great ratings, even with very bad scores.
So this is why people with bad credit often use this method to improve their scores.
Let’s see some ways in which tradelines can do that.
Tradelines report the positive history of an account to the credit bureaus
One way that a credit tradeline can affect your credit positively is by adding a positive history to your credit record. If you are an authorized user on a tradeline, the positive history of that account will be reported to the credit bureaus.
Tradelines can help you improve your credit utilization ratio
Another way authorized user tradelines can help improve your credit is by increasing your credit utilization ratio.
This is the amount of credit you have available to you compared to the amount of credit you are using. The higher your credit utilization ratio, the better it is for your credit score.
Tradelines can help you build a positive payment history
Authorized User Tradelines can help you build a positive payment history, which is one of the most important factors in your credit score.
When the primary account holder makes on-time payments on the account, it will reflect positively on your credit record as well.
Tradelines can also help to improve your credit mix
A better credit mix is another factor that is used to calculate your credit score. By having a mix of different types of accounts on your credit record, you can show lenders that you are a responsible borrower.
This can help to improve your chances of being approved for new lines of credit in the future.
However, it is important to note that authorized user tradelines can also be negative if the account holder does not make payments on time. Therefore, it is important to carefully consider whether or not an authorized user tradeline is right for you before you agree to be one.
Are Tradelines Legal?
Yes, tradelines are legal. They are a way to improve your credit score by piggybacking on someone else’s credit history.
The Fair Credit Reporting Act (FCRA) does not prohibit the use of authorized user tradelines. In fact, the FCRA states that credit reporting agencies may include authorized user tradelines on credit records.
However, some companies claim to be able to add authorized user tradelines to your credit report without your permission. These companies are not following the law, and you should avoid doing business with them.
Additionally, some companies that offer tradelines may be scams. So do your own research before working with any company to ensure that they are legitimate.
Pros and Cons of Tradelines
Before you can make a decision to add primary tradelines to your credit record, it’s essential to understand the pros and cons.
Some of the potential benefits of tradelines include:
- The ability to improve your credit score
- The ability to offset negative information on your credit record by adding positive information
- The ability to access more favorable terms on loans and other lines of credit
However, there are also some potential drawbacks to consider, including:
- Tradeline companies cost can be expensive.
- A new tradeline may not be reported by all lenders.
- Tradelines can expire, which can cause your credit score to drop.
Ultimately, whether or not tradelines are right for you will depend on your unique financial situation. If you’re considering adding tradelines to your credit report, speak with a financial professional to get expert advice.
Wrapping It Up
So, what are tradelines? Simply put, they’re lines of credit that are added to your credit report. They can be a good thing to improve your low credit score and help you get approved for loans such as a credit cars, a loan application at better interest rates as well as any other financial product. The last thing you want is to be approved for higher interest rates only to not be able to pay it back.
But as with anything related to your credit score, it’s important to do your research before deciding whether tradelines are right for you. If you have a good credit score, getting a trade line may not be worth it.
There are many companies out there offering tradeline services, so make sure you choose one that’s reputable and will provide the best results for your unique situation.