What are Tradelines, and How Do They Impact Your Credit Score?
The secret to using tradelines effectively to improve your credit score lies being proactive — making sure that accounts that appear on your credit report are in the best shape possible before they’re reported by lenders or creditors – rather than taking action after the fact once the damage to your credit score has already been done.
To do so, it’s helpful to understand what data is included in a tradeline:
Basic account details: This includes the name of the account, address/contact information for the creditor or lender and account number.
Type of account: This is where your credit mix comes in, as about 10% of your credit score is influenced by the types of credit accounts you have open. These include:
Open revolving accounts, like retail or bank-issued credit cards, where a balance is carried month-to-month.
Installment accounts, which are loans where a fixed rate is paid monthly for a predetermined period of time, such as a mortgage payment, student loan or car loan.
Open accounts, which is the least common type and is like a hybrid of revolving and installment: the balance varies month-to-month, but it’s always due in full. Examples of this type of account include utilities and check cards.
Account ownership tells you who is responsible for payment. There are a few different categories:
Individual, when the account is in your name only.
Joint, when you and another person (i.e. your spouse) are both responsible for payments.
Authorized user, which is when a credit card is in your name but you’re not ultimately responsible for payments.
Cosigner, when you’re responsible for someone else’s account if they don’t pay.
Payment terms and status, which dictates and reveals how you pay your bills. Best case is “pays as agreed” (on-time), with late payments starting at 30 days and continuing to 60, 90, 120, 150 and 180. After that six month mark, most creditors will close the account as a charge-off, meaning they assume you’re never going to pay. (With some types of debt, like mortgage loans, that write-off timeline might kick in sooner, after the 120-day mark.) Altogether this reveals your payment history, which can appear on your credit report for up to seven years.
Key account dates or those milestones on the account such as the date it was opened or closed, as well as the date reported (last date the item was reported or updated on your credit report).
Additional credit information including credit limit and balances owed.
Now that you understand tradelines and how they relate to your credit score, you can see how important it is to regularly review your credit reports from all three credit bureaus. Keep in mind that having fewer tradelines on a credit report doesn’t equate to having a higher credit score. In fact, people who have several active tradelines in good standing (no missed payments or maxed out credit), including a good mix of credit account types and that have been open for at least two years, end up having higher credit scores.
Beyond consistently paying your bills on time, here are several ways that understanding how tradelines work can boost your credit score:
Turn your monthly rent payments into a new tradeline.
Rent is for many people the single biggest monthly payment. Because you can’t directly report rent payments to credit bureaus and most landlords aren’t authorized reporters, you should work with a certified credit reporting agency like RentTrack to report your rent payments to all three credit bureaus.
Carefully check tradelines on your credit reports and fix any inaccuracies.
Thanks to the Fair Credit Reporting Act, you have the legal right to dispute errors on your credit report. Unlike reporting tradelines to credit bureaus, which only an approved reporting agency can do, you can contact credit bureaus directly to fix any errors or incomplete information. The Federal Trade Commission has sample letters you can use to dispute incorrect information, and they also make recommendations on how to make sure your request is received and addressed by the bureaus.
Get credit for positive items that aren’t listed on your credit report.
From the date your first opened an account (and remember, the longer you’ve held accounts in good standing, the better) to positive monthly payments, make sure you’re getting credit where it’s due to you. Because not all creditors will report your account, you should consider reaching out to request that positive items are reported on your behalf. For example, if you were a co-signer on a loan that was paid as agreed or if you’re co-owner of a joint account that’s in good standing and is not listed on your credit report but it is on your partner’s, you should contact the creditor to be sure that kind of information is reported to all three credit bureaus.
Keep older credit card accounts open, even if you don’t use them anymore.
One of the key components of your credit score is the credit utilization ratio, which is how much debt you owe on all your accounts combined compared to how much credit you have with those accounts. Rather than close out an old credit card account that you don’t use anymore, leave it open; the credit limit on that card will help increase your overall credit availability, but you won’t add any debt. It also helps bolster a long credit history, which is also a good thing for your credit score.
The secret strength of tradelines lies in understanding the information they contribute to your credit report. Knowledge is power, so when you take note of how your financial actions positively — and negatively — affect your tradelines, you arm yourself to fight for what you need and deserve: a strong credit score.