Business Banking

What are tradelines?

Learn all you need to know about tradelines in our guide.

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In credit reporting, a tradeline refers to a credit account that’s listed on your credit report. It basically details information about a debt that you have, including the associated creditor. Some examples of tradelines are personal loans, mortgage loans and credit cards. All of them appear on credit reports, along with details like the amount owed and the creditor from whom you got the tradeline.

That said, the term tradeline is commonly used to refer to authorized user tradelines, usually abbreviated as AU tradelines. An authorized user tradeline is an account on which you are added by the primary owner of the said account. If, for example, someone adds you to their credit card, then it becomes an AU tradeline to you. You’re not liable for the charges that the account incurs, but it appears on your credit report.

If you are the owner of the account and you seek to add someone else, then that makes your account a primary tradeline and that other person is an authorized user of your account. As the primary account holder, you are responsible for paying the debt regardless of your relationship or agreement with the authorized user. Some of the best primary tradelines include mortgages, credit cards and auto loans.

In your credit report, a tradeline is initiated the moment your application for a loan or credit facility is approved. From there on, any activity regarding that loan goes under the tradeline. This includes your payment history, defaults and other information collected and reported by credit bureaus like Experian, Equifax and TransUnion. When you practice good credit habits, it translates into good tradelines. The converse is also true – bad credit habits result in bad tradelines, and this may negatively affect your credit score.

Understanding tradelines and how they work can help you manage your personal and business debts better. You’ll also find it easier to read and comprehend your credit report; and that includes figuring out what creditors and lenders look at when they check your credit.

How do tradelines work?

As mentioned, the primary way of getting a tradeline is by taking up a debt. It can either be a loan or credit facility like credit card or line of credit. Either way, the process starts with you applying for it. The lender will then pull your credit report to see your creditworthiness. When checking a credit report, lenders often pay attention to the following:

  • Your payment history. They specifically want to know whether you make timely payments or if you have late payments.
  • The amount of debt you have. This shows whether or not you’re in a position to take up new debt. Too much debt and maxed out credit cards are red flags to a creditor.
  • Debt-to-income ratio. Is your debt more than your income can support? If so, the lender will again deem you to have too much debt to take on another.
  • The number of hard inquiries. A hard inquiry basically means that you have taken up a new debt. If you have too many of them, especially if they occurred within a short period of time, the lender may see that you are desperate for money. That too is a red flag.
  • Your history with defaults. Do you have debts and accounts that you haven’t been making payments towards? Have you had foreclosures, repossessions and collections? All these will show up on your credit report and will paint the picture that you are uncreditworthy.

After checking all the above, and the lender finds that you are in good standing (few to no red flags), they will likely approve your tradeline. If, on the other hand, you are making little income, have too much debt that you’re struggling to pay off, and you have a history of defaults and late payments, then your application will likely be declined.

You, obviously, want to be in good standing at all times to increase your chances of qualifying for all types of tradelines.

Types of tradelines

When reading your credit report, every credit account is a tradeline by itself. That includes all accounts that you’re currently paying, open accounts, closed accounts, and accounts that you hold jointly with someone else; whether as the primary user or authorized user. Generally, all tradelines fall into three different types:

Revolving loans

A revolving tradeline is an on-going type of credit where you draw down cash, repay it in part or full and then withdraw again. Examples of revolving tradeline accounts are credit cards and lines of credit.

Installment loans

These are loans where you borrow a lump sum of cash that you have to repay over a fixed period of time in installments. Mortgages, auto loans, student loans, business term loans and personal loans are all examples of installment loans.

Open accounts

If a seller gives you goods and allows you some time to complete the payment, then you have an open account. Open accounts are common for businesses. Your vendor may give you net-30, which means you have to pay them back within 30 days. They may also give you net-15, net-45, net-60 and even net-90, depending on the amount, your creditworthiness, and your relationship.

What’s considered a seasoned tradeline?

Generally, a seasoned tradeline is an account that’s at least two years old and is active. If, for example, you have a line of credit that you’re not using, then it most likely won’t be classified as seasoned because it’s inactive. In which case, that account will be unseasoned.

You want to avoid unseasoned tradelines by keeping your accounts active. In fact, the longer you have a tradeline open and active, the higher your FICO score goes. To get an excellent credit score, you’ll want to keep your tradeline accounts open for at least 10 years.

How much do tradelines increase credit?

An excellent tradeline can increase your FICO credit score by up to 200. Two of the most important aspects of a tradeline – as far as boosting credit – are its age and credit limit. The longer you keep a tradeline open, the higher your FICO score goes.

Similarly, a tradeline with a high limit will have a more positive effect on your credit than one with a lower limit. If it’s a credit card, you want to keep it open for at least 10 years and build your limit to anywhere between $10,000 and $20,000. It won’t just reflect well on your credit report, but it will also boost your credit score.

But there’s more. Your FICO credit score is calculated using:

  • Payment history – 35%
  • Total amount owed – 30%
  • Length of credit – 15%
  • Credit mix – 10%
  • New credit – 10%

As long as you have a tradeline, a credit bureau will pick all the above information along with details of your creditor. If, for example, you have a credit card that has been open for 10 years or more, with a limit of $10,000 or more, and you use it frequently (even if for grocery shopping alone) and pay diligently, then it will reflect excellently on your credit report.

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