What Is a Tradeline?
Acquiring a diverse set of tradelines is one of the primary steps of the credit-building process. As a result, you need to understand the term thoroughly if you want a good credit score.
Here’s a comprehensive guide to everything you should know about consumer tradelines, including what they are, how they work, and why they matter.
What Is a Tradeline and How Do They Work?
A tradeline is simply the credit industry’s term for a credit account that shows up on at least one of your credit reports. It can refer to the actual debt or its record in your credit profile.
When you receive approval for some form of credit, your creditor can report the account to one or more of the credit bureaus. If they do, it will show up in the credit reports that those bureaus are responsible for managing.
As you borrow against the credit account or make payments toward it, your creditor will continue to report your activities. Subsequently, each credit bureau will update your tradeline to reflect the new information.
Each tradeline in your credit report should display background information about the account and details about its current status. For example, that may include data like the following:
Type of credit line
Name of creditor
Date opened
Credit limit
Outstanding balance
Available credit
Monthly payment amount
Timely and late payment occurrences
Though each credit report looks different, credit bureaus often separate your tradelines into categories to help organize them. For example, they might split them between accounts in good or bad standing.
What Are Examples of Tradelines?
Any credit account in one or more of your credit reports from the major credit bureaus is technically a tradeline, which means there are countless examples of them. Generally, they fall into one of the following categories:
Revolving tradeline: This is a credit account you can borrow against, pay back, then reuse. That would include a secured credit card or a home equity line of credit.
Installment tradeline: This is a credit account that provides a lump sum upfront which you must pay back in installments over a fixed repayment term. That would include an auto loan, mortgage, or student loan.
You usually have to get a credit tradeline by applying for it. However, revolving tradelines are an exception. You can get one by becoming an authorized user on someone else’s credit card account and adding their payment history to your report.
An authorized user has the right to borrow against a credit card account but no legal responsibility to make payments. As a result, you usually have to become an authorized user on a credit card that belongs to someone who knows, trusts, and cares about you.
While it’s legal to become an authorized user on accounts from vendors selling tradelines online, credit reporting agency leaders frown upon it. Newer credit score models may ignore certain tradelines if it looks like you bought them.
In addition, there’s always the risk that the primary account holder could misuse the account and damage your credit. As a result, you’re often better off getting an authorized user tradeline from a trusted loved one than a tradeline supply company.
What Is the Purpose of a Tradeline?
The fundamental purpose of a tradeline in your credit report is to document your credit account information. That’s why they contain so many details about your creditor, repayment terms, and account usage.
That record helps facilitate several functions, the most important of which is giving lenders the data they need to calculate your credit scores. In fact, checking your credit essentially involves plugging your tradeline data into an algorithm.
In addition to serving as the raw data for calculating your credit score, lenders may review your tradeline information directly as part of their underwriting process. It helps them get context when they need it.
For example, say you apply for a mortgage with a 640 FICO Score 8, which is around the minimum for the average mortgage lender. They might review your tradelines directly to see what’s holding your score back.
If they find that your outstanding debt balances are too high, they may be less inclined to approve you. Conversely, they might be more generous if your tradelines show that you had a stretch of missed payments several years ago after losing your job.
Finally, your tradeline information can be helpful to you during the credit repair process. It provides a record of your past mistakes, which can help you focus your efforts and fix your bad credit more efficiently.
For example, if you use a free credit report to check your tradeline data and find that you have several delinquent accounts, the first step in repairing your score should probably be to catch up on them.
How Does a Tradeline Affect Your Credit?
Ultimately, your credit scores are a function of the tradelines you acquire and how you use them. The more diverse your set of tradelines and the more responsible you are with them, the better your score.
Your FICO Score 8, the most popular consumer credit score, depends on five factors. Here’s what they are and how your tradelines impact them:
Payment history: This factor measures how often you’ve made your tradeline’s monthly payments on time and in full. The fewer payments you miss, the better. It’s worth 35% of your FICO score.
Amounts owed: This factor accounts for how much debt is outstanding on your revolving and installment tradelines. Lenders want to see you’re using your accounts, but your credit utilization ratio shouldn’t be so high that you risk getting overwhelmed. It’s worth 30% of your FICO score.
Length of credit history: This refers to the age of your tradelines. A seasoned tradeline that you’ve had for years is better for your score than a brand new one. It’s worth 15% of your FICO score.
Credit mix: This factors in the diversity of your tradelines into your score. Having multiple revolving and installment accounts is best. It’s worth 10% of your FICO score.
New credit inquiries: This factor considers the number of times you’ve applied for new tradelines. Applying for too many in rapid succession may hurt your creditworthiness. It’s worth 10% of your FICO score.
VantageScore 3.0, the second most popular consumer credit score, considers virtually identical factors. There are slight differences between the algorithms behind the two scores, but diversifying your tradelines and making payments on time will benefit both.
When Are Tradelines Removed?
Fortunately, the length of time tradelines stay on your credit reports is the same at Experian, Equifax, and TransUnion since consumer credit bureaus must follow the rules in the Fair Credit Reporting Act.
In general, tradelines remain on your personal credit reports for as long as they’re open. Once you close them, negative accounts typically age off after seven years, while positive ones remain for 10 years.
There are some exceptions, though. For example, authorized user tradelines will disappear from your credit report immediately after the primary account holder removes you from the card and the issuer reports to the credit bureaus.
In addition, if you believe a tradeline in your credit report doesn’t belong to you, you can dispute it with the credit bureau. If you can prove that it’s not yours, the bureau must remove it within 30 days.
Unfortunately, credit report errors happen more often than you might expect. One Consumer Reports study reported that 34% of the consumers they surveyed found at least one mistake in their files, so be sure to double-check yours.
Improve Your Tradelines Today
If you want to build big credit by acquiring additional credit accounts, CreditStrong can help. We offer credit builder loans for consumers that can add an installment tradeline to your credit reports with Experian, Equifax, and TransUnion.
Because we use your proceeds as collateral, there’s no credit check to sign up, and almost anyone can qualify. In addition, you can customize your monthly payments to ensure they’re affordable and cancel without penalty at any time. Give it a try today!
The post What Is a Tradeline? appeared first on Credit Strong.
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