Understanding a Tradeline and How It Can Affect Your Credit Score

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Your credit report is an essential part of your adult life. When you want to buy a car, get a mortgage loan, or even open a store credit card, the lenders are interested in your report. More specifically, they are interested in the tradelines that are on the report. Now, you may be asking yourself  “what is a tradeline?” It’s important not only to know what one is but how it affects your credit score and what you can do about negative impacts.

What Is a Tradeline?

Although the term sounds a bit fancy, a tradeline is simply an account that appears on your credit report. If you have a mortgage loan, auto loan, credit card, or any other type of credit, it shows up as a tradeline on your report when someone requests your score from the credit bureau.

What Are the Two Types of Tradelines?

There are two types of tradelines. Revolving tradelines involve receiving a line of credit that has a limit. This type of tradeline is either paid off monthly or carries a balance that you pay interest on. Good examples of revolving tradelines include your credit cards or any home equity loan that you may have. There are also installment tradelines. Installment tradelines allow you to receive a large sum of money as a loan. You then make fixed payments on the loan until you pay it back. Personal loans, mortgages, and student loans are good examples of this type of tradeline. 

How Does a Tradeline Affect Your Credit Score?

There is a credit score algorithm that looks at your tradelines to determine what your three-digit credit score should be. The higher your score, the better your credit is. There are five factors that go into creating your FICO credit score. The two most important parts are your payment history and the amounts that you still owe. They account for 35% and 30% of your score, respectively. The other factors include the length of your credit history, how much of it is new credit, and the mix of types of tradelines that you have. These three factors account for the other 35% of your score. If you owe lots of money, have delinquent accounts, or don’t have much credit history yet, expect to have a lower credit score. 

How many tradelines you have may affect your score as well. If you have too many tradelines on your credit report, lenders will assume that you’ve overextended your budget. On the other hand, if you have too few tradelines on your report, then they assume that you don’t have enough experience with credit to make good decisions. Unfortunately, lenders don’t let borrowers know exactly how many accounts are too many or too few, so the best idea is to only open or close tradelines when it is absolutely necessary. Keep in mind that for a credit score to be provided for you, you must have at least one tradeline and it must be open for at least six months. 

What Information Is Provided on a Credit Report Tradeline?

Your credit report will provide several pieces of information on the tradeline when someone requests your information from the bureau. Typically, this will include the name and address of your lender, what type of account it is, the date you opened it, your current balance, and the date of your most recent activity. It may also include your minimum monthly payment, your payment history, and your payment status. This helps the people who need your credit report to see whether you have a lot of accounts and if you keep the ones you have current. 

When Is a Tradeline Removed From Your Credit Report?

When a tradeline is removed from your credit report varies depending on the circumstances of the removal. For example, some people assume that closing a credit account will cause it to fall off of the credit report right away. In actuality, it may reflect positively on your credit report for as long as a decade. On the other hand, if you were an authorized user on an account and no longer are, the tradeline will fall off of your report in about two months. 

There are cases of negative tradelines as well. If you owe money to a utility company, went through a bankruptcy, or experienced similar situations, expect to see each negative tradeline on your credit report for about 7-10 years. However, after two years, it will not have as serious of a negative impact on your credit score.

How Does the Credit Bureau Collect Tradeline Information?

The lenders or creditors that you have accounts with provide the information for tradelines to the credit bureaus. They have specific agreements and typically update their information monthly. It is a federal law that each of the major credit reporting agencies must provide you with one free report per year. Since most of the time these reports have the same information on them, you can stagger them to get a report every four months. This is helpful for tracking your tradelines and ensuring they are all correct and in good standing.

Checking for errors on your credit report is essential. Even small mistakes can lead to discrepancies in your report and a lower score. If you notice misinformation, you can write to the credit bureau to have them fix it. It’s also important to look for tradelines that you don’t recognize as they could be a sign that someone has stolen your identity. If you need to dispute something on your credit report, don’t worry. You won’t need to write the letter on your own. The Federal Trade Commission provides sample dispute letters to help you. Use these to dispute tradelines that aren’t yours, dispute errors such as payments marked delinquent when they weren’t, and correct any other errors that you may come across.

Do People Buy New Tradelines? 

Some people who have low credit scores and want to boost them quickly decide to buy new tradelines. This involves purchasing access to someone’s existing tradeline, which often costs hundreds of dollars. Once paid, your name is listed as an authorized user on someone else’s credit card, causing the tradeline to appear on your own credit report, boosting your score, and allowing you to apply for your own line of credit. However, buying tradelines isn’t always successful. Credit reporting agencies typically view this as deceptive and reworked the scoring model because of it. This means that fewer people try to buy tradelines. Keep in mind that many companies claiming to sell them are scammers.

Just because you can’t buy tradelines to boost your credit doesn’t mean that you don’t have options. You can still create a positive payment history and boost your credit score if you’re willing to take the time to do the work. Apply for secured credit cards that require a deposit to start building your credit history. As it grows, apply for a store credit card or two. From there, you will begin to see your credit score rise and be taken more seriously by other types of lenders. 

According to Experian, the average credit score in America is 714 as of 2021. These scores are going up because more people are taking time to learn about tradelines and how their credit history affects their lifestyles. Now that you know the answer to “what is a tradeline?” you can start to do the work to ensure that yours are working in your favor. 

SOURCES

https://money.usnews.com/credit-cards/articles/what-is-a-tradeline-and-how-does-it-affect-my-credit#:~:text=Tradeline%20Definition,used%20to%20generate%20that%20score.

https://www.nerdwallet.com/article/finance/credit-tradelines

https://www.thebalance.com/what-is-a-credit-report-tradeline-4584436

https://consumer.ftc.gov/articles/sample-letter-disputing-errors-credit-reports-business-supplied-information

https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/