Your credit is dependent on tradelines. But what exactly are tradelines and how do they influence your credit score? And most importantly, how can you manage your tradelines to get the best credit possible?
What is A Tradeline?
Simply put, a tradeline is an account that is displayed on your credit report.
The term “tradeline” is most often used by the credit bureaus themselves. They further separate tradelines into 3 categories.
- Installment Credit – these tradelines consist of credit accounts that you pay on an installment basis. This includes personal loans, credit builder loans, auto loans, mortgages, student loans, etc. Installment credit can be secured or unsecured.
- Revolving Credit – these tradelines are lines of credit that you charge on and pay on a recurring basis. Most often these are credit cards, although other types of credit lines, i.e. PayPal Credit, also count as revolving credit. Revolving credit can consist of secured or unsecured accounts.
- Alternative Credit – this is the least common type of tradeline and consists of rental payments, utility payments, subscription payments, and more. These tradelines are not true credit accounts, in that no ‘line of credit’ is extended. But, these tradelines can still be used in credit score calculations.
Tip: Alternative credit will not be reported by the company you’re paying. These accounts will only appear in credit reports if you use a reporting service like Boom (for rent payments) or eCredable (for utility payments).
What is Not a Tradeline?
Not all of the information that appears on your credit reports is considered tradeline information. Your personal information is not related to your tradelines.
Other entries such as collections, credit inquiries, and public records (i.e. bankruptcies) also have an impact on your credit but are not considered “tradelines”.
What Information Is In a Tradeline?
Each tradeline that is reported to the credit bureaus includes a series of account data. Some of these facts are informational only, while others will have a huge impact on your credit score.
Some basic account facts that are reported include
- Account numbers
- Creditor name
- Lender address
- Type of account
- Account opening date
- Original loan amount
- Credit limit
- Current balance
- Payment history
- Current account status
- Date account was closed
Not all tradelines will report all of this information. For instance, utility payment reporting services might not report past payment history.
How A Tradeline Affects Your Credit
Each individual tradeline can have a significant impact on your credit. How much each tradeline will impact your credit depends on the details of that account as well as the current status of your overall credit.
The impact of an individual tradeline is greater if you have a thin credit file with only a few tradelines. The more information is in your credit report, the lower the impact of any single record will be.
Adding a Tradeline
Adding a tradeline can affect your score in both negative and positive ways.
A brand new account will have a direct impact on the new credit portion of your score. The creditor will check your credit and register a hard inquiry. That will cause a small decrease in your credit score. If you have several hard inquiries close together the drop will be more pronounced.
The new account will also have a negative impact on the length of credit history portion of your score. This is because it will lower the average age of your accounts.
For example: If you previously had a 4-year-old loan and a 2-year-old credit card, adding a new account will drop your average age of account from 3 years to 2 years.
Adding a revolving tradeline will have an immediate positive impact on your credit utilization. Credit utilization is a major factor in your credit score calculation. The credit limit of the new account will be added to your total credit limit, reducing your credit utilization.
Closing a Tradeline
Closing a tradeline is rarely if ever good for your credit score. While you would think paying off a loan proves to lenders that you are responsible with debt, this is not always reflected in your credit score.
This is because when you close an account, you are losing a lot of that beneficial tradeline information. Closed accounts have less impact on your credit score than open accounts.
Data like the credit limit, balance, and the original loan amount will immediately fall off your credit reports. This will likely have a negative impact on the amounts owed portion of your score.
Credit age is also halted. While it does not immediately fall off, account age stops increasing and as a closed account, it has less weight than an open account does.
The upside is that the positive payment history on your tradeline will remain for up to 10 years after your account is closed. Most negative information will remain for a maximum of 7 years.
And, just like with adding tradelines, the fewer tradelines you currently have, the bigger the impact on your credit score when you remove or delete a tradeline.
It is important to note that closing a tradeline will not remove it from your credit report. The only way a tradeline can be removed is when it ages out or when it is successfully disputed.
Authorized User Tradelines
An authorized user tradeline is recorded on your credit report when someone else adds you as an authorized user on their credit card.
Once you become an authorized user, this credit card is reported as a tradeline on your credit, if the credit card issuer reports authorized users.
While this tradeline will appear like a revolving credit tradeline, it is not weighted in the same way as a primary account (an account that is in your name). This account can affect your payment history, average account age, and credit utilization, but adding or closing this type of tradeline is unlikely to have a huge impact.
Becoming an authorized user can be a good way to improve your credit if you have a thin file (very few tradelines), but only if done the correct way.
What About Buying Tradelines?
Many companies now offer tradelines for sale. This is a variation of the authorized user strategy. Essentially you are paying someone with good credit to add you as an authorized user for a fixed period of time.
This is legal, but both credit card companies and credit bureaus frown on the practice and discourage it. There are also risks.
- High cost. “Seasoned” tradelines with good credit records are expensive. The impact on your credit may not be significant and will end when the account is closed.
- Low impact. Credit scoring models are designed to identify purchased tradelines and downgrade their impact.
- Potential credit damage. You don’t know the owner of the tradeline, and you can’t assure that they will manage the account well.
- The account may be closed. If the card issuer finds out that the tradeline is being sold, they will close the account and you’ll get no benefit.
- Disreputable companies. Many companies selling tradelines are not legitimate. You’ll have to choose carefully.
You will hear stories about people who built their credit using purchased tradelines. Some of them might even be true. Overall, though, it’s not a reliable or desirable way to build credit.
What to Do if a Tradeline is Not Yours
If you find a tradeline that is not yours appearing on one or more of your credit reports, the first thing you’ll want to do is pull all of your credit reports to look for any other suspicious activity. You can pull your credit reports for free through annualcreditreport.com.
If there are multiple new tradelines and credit inquiries on your credit report that you do not recognize, then you might be the victim of identity theft.
If this is the case you’ll immediately want to take steps to protect your credit including notifying the credit bureaus, locking or freezing your credit file, reporting the theft to the FTC, and filing a police report.
Once you have a lock on preventing further fraud, then you can begin notifying the lenders of these fraudulent accounts and opening disputes with the credit bureaus.
The word “tradeline” may sound confusing or even worrisome, but by just replacing it with the phrase “credit account” you have a pretty accurate idea of what a tradeline is and how it relates to your credit.
Much of the terminology associated with credit scores can be complex and confusing, so do yourself a favor and ignore the words.
Instead, pay attention to the numbers. The number of accounts you have open, the dollar total of your credit limits, the number of late payments you have, etc. If you work on improving the numbers, then you are already doing a great job in correctly managing your tradelines.
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