Are Tradelines Worth It to Build Your Credit?

Tradelines are records of credit accounts on an individual’s credit report, directly shaping their financial standing. This article explores the nature of tradelines and their impact on credit, guiding readers through considerations for their use and alternative strategies for building credit.

Defining Tradelines

A tradeline is a specific entry on a credit report detailing an account a consumer holds with a creditor. Each credit account, such as a credit card or loan, generates a separate tradeline. These entries provide information about the account, including the creditor’s name, account type, status, opening date, credit limit or loan amount, current balance, and payment history.

Tradelines are categorized into primary and secondary types. A primary tradeline is an account opened directly by an individual, where they are solely responsible for the debt. Examples include personal credit cards or auto loans. A secondary tradeline, often called an authorized user (AU) tradeline, occurs when an individual is added to someone else’s existing credit account. While an authorized user can make purchases, they are not legally responsible for payments.

Lenders report information from both primary and authorized user accounts to the major credit bureaus: Experian, Equifax, and TransUnion. An authorized user account can appear on a credit report within 30 to 45 days. It is important to confirm that the card issuer reports authorized user activity to all three bureaus.

How Tradelines Influence Credit

Tradeline information directly contributes to credit score calculations, such as FICO and VantageScore. These models weigh various factors from tradelines to assess creditworthiness. Payment history is a significant factor, typically accounting for about 35% of a FICO Score, where consistent on-time payments positively affect a score.

Amounts owed, especially credit utilization on revolving accounts, substantially influence scores, making up approximately 30% of a FICO Score. A lower utilization rate, meaning less available credit is used, generally results in a better score. The length of credit history, including the average age of all accounts, accounts for about 15% of a FICO Score and 15-20% of a VantageScore. Longer histories with positive activity are viewed favorably.

Credit mix, the types of credit used, contributes around 10% to a FICO Score and is influential for VantageScore. A diverse mix of installment loans and revolving credit accounts demonstrates an individual’s ability to manage different credit types. New credit applications, which result in hard inquiries, also play a role, accounting for about 10% of a FICO Score. These inquiries can temporarily lower a score, with their impact fading within a few months.

Authorized user tradelines can affect these factors. A positive authorized user account with a long history of on-time payments, a high credit limit, and low utilization can enhance payment history, lower overall credit utilization, and increase the average age of accounts. While authorized user accounts are factored into credit score calculations, some models, like FICO 8, may assign them less weight than primary accounts, as the authorized user is not legally responsible for the debt. Conversely, if the primary account holder misses payments or carries high balances, this negative activity can reflect on the authorized user’s report, potentially lowering their score.

Considerations for Tradeline Use

When evaluating tradelines, especially those obtained through third-party services, several factors warrant consideration. The cost of purchasing tradelines varies significantly, typically ranging from $150 to over $1,000, sometimes exceeding $2,000. This price is influenced by the tradeline’s characteristics, such as account age, credit limit, and payment history. Older accounts with higher limits and perfect payment records generally command higher prices. Individuals should weigh this expense against potential, but not guaranteed, credit improvement.

The practice of buying and selling tradelines, often called “piggybacking,” exists in a legal gray area. While no federal laws explicitly prohibit their sale, lenders and credit bureaus widely regard it as unethical. This practice can misrepresent an individual’s actual creditworthiness, potentially leading to loan approvals that might not otherwise occur. Credit card issuers and scoring companies are aware of this practice, and some may have policies against it, which could lead to account closure if discovered.

The impact of purchased tradelines on a credit score can be temporary. These arrangements often last a few months, after which the authorized user may be removed from the account. Once removed, positive effects on the credit score may diminish, especially if the individual has not simultaneously built their own primary credit history. Some credit bureaus, like Experian, may not include missed payment information for authorized users, but high credit utilization on the primary account will appear and could negatively impact the authorized user’s score.

Individuals considering a tradeline should assess their current credit situation and financial goals. A purchased tradeline is not a universal solution for credit improvement, and its effectiveness varies based on an individual’s unique credit profile. There is also a risk of encountering fraudulent companies. Verifying the legitimacy of any service and understanding the terms, including how long the tradeline will remain on the report and the card issuer’s reporting practices, is important before engaging in any transaction.

Other Credit Building Strategies

For individuals seeking to build or improve their credit, several traditional strategies exist. These methods focus on establishing a history of responsible credit management without relying on the complexities and ethical considerations of purchased tradelines.

One common approach involves securing a secured credit card. This card requires a cash deposit, which serves as the credit limit. The deposit minimizes risk for the issuer, making these cards accessible to those with limited or no credit history. Payments made on a secured card are reported to the credit bureaus, allowing individuals to build a positive payment history and demonstrate responsible credit usage.

Another strategy is obtaining a credit-builder loan. Unlike traditional loans, the loan amount is held in a savings account or certificate of deposit (CD) by the lender and becomes accessible to the borrower only after full repayment. The borrower makes regular payments over a set period, usually 6 to 24 months, and these payments are reported to the credit bureaus. This process helps establish a positive payment history, a significant component of credit scores.

Becoming an authorized user on a trusted family member’s or friend’s credit card account can also be beneficial, provided the primary account holder manages the account responsibly. This allows the authorized user to benefit from the primary account’s positive payment history and credit limit, which can help improve their credit utilization. However, this strategy relies on the primary account holder’s consistent financial behavior.

Beyond specific credit products, consistent responsible credit behavior forms the foundation of a strong credit profile. This includes making all payments on time, as payment history carries significant weight in credit scoring models. Maintaining low credit utilization by keeping balances well below credit limits is also important. Avoiding unnecessary new credit applications helps preserve the average age of accounts and limits hard inquiries on a credit report.