Understanding Tradelines: A Comprehensive Guide
If you find yourself with a low credit score or a limited credit history, you might be considering the purchase of tradelines, often referred to as “piggybacking.” Many companies that offer tradelines claim that you can experience a near-instantaneous boost to your credit score. This increase could be the deciding factor between acquiring a reliable vehicle or settling for something less desirable. While some individuals may see a temporary improvement, purchasing tradelines can come with significant costs and risks, and it doesn’t guarantee success. We advise against this method in favor of more secure and trustworthy alternatives. Here are the essential points to understand regarding the concept of buying tradelines:
- Legality and Terms: While the act of buying tradelines is legal, it typically violates the terms of service of many credit providers. Getting caught could result in a permanent ban from certain financial institutions.
- Risk of Fraud: Although buying tradelines itself is legal, using the subsequent credit score boost to secure a loan or credit card can lead to legal complications. Lenders might view this as an attempt to deceive them with artificially inflated scores.
- No Guarantees: There’s no assurance that purchasing a tradeline will be effective, as its success heavily depends on your unique credit history.
- Preferable Alternatives: Consider safer, more economical options such as starter credit cards, credit builder loans from reputable lenders, or becoming an authorized user on a family member’s or spouse’s credit account.
- Broader Payment Reporting: You can also report various other payments, such as rent and utility bills, to enhance your credit score more quickly.
What Is a Tradeline?
The term “tradeline” refers to any account listed on your credit report. Each time you open a credit account, a tradeline is created. There are two primary categories of tradelines:
- Installment Accounts: This includes loans such as mortgages, student loans, and auto loans, where you make fixed payments over a specified period.
- Revolving Accounts: This consists of credit cards and other lines of credit, where you can borrow and repay at your discretion.
Each tradeline contains essential details, including the type of account, activity, balance, and credit limit. These factors help credit scoring agencies like Equifax and TransUnion assess your creditworthiness by reflecting your payment history and the age of your accounts. Positive tradelines can enhance your credit score, while negative ones, such as missed payments or defaulted accounts, can significantly diminish it.
It’s common for family members to share tradelines by adding their spouses or children as “authorized users.” This practice, known as piggybacking, can provide a substantial boost to someone’s credit score if the primary account holder has a positive credit history. On the other hand, the ethically ambiguous practice of buying tradelines involves paying to become an authorized user on a stranger’s credit account, typically a credit card. The cost of such tradelines can vary widely, ranging from a few hundred to several thousand dollars.
How Buying Tradelines Works
Typically, buyers work with a tradeline broker to facilitate the purchase. These brokers connect individuals with excellent credit histories who are willing to sell access to their accounts as authorized users. The buyer pays the broker, who then compensates the seller with a commission.
The arrangement is usually temporary; you won’t remain on the seller’s card indefinitely. These agreements typically last for a few months, just long enough for the tradeline to appear on your credit report. This temporary boost may improve your chances of securing a loan or credit card or obtaining favorable rates for significant purchases.
To be added as an authorized user, you’ll need to provide personal information, including your ID and Social Security number. This requirement raises concerns about potential scams in this unregulated industry. While some brokers operate legitimately, many risks are involved, especially when sharing personal data. Additionally, you usually won’t receive a credit card for the account you purchase, which means you cannot influence its usage, making you vulnerable to the primary account holder’s actions.
Is Buying Tradelines Legal?
Buying tradelines is legal under the Equal Credit Opportunity Act established in 1974. This law was designed to help individuals, particularly women, build credit histories by prohibiting discrimination from creditors based on traits like marital status and gender. However, a side effect of this law, along with the subsequent Federal Reserve Regulation B, is that creditors began reporting authorized users to credit bureaus without revealing their relationship to the primary account holder. This is why parents can add their children to their credit cards and why individuals can purchase tradelines through brokers.
Despite the legality of buying tradelines, there are risks involved. Using purchased tradelines to artificially inflate your credit score before applying for credit could be viewed as deceptive or fraudulent by lenders, potentially leading to legal issues.
Why Buying Tradelines Can Hurt Your Credit
While buying tradelines may appear to be a quick fix for poor credit, it carries several risks that warrant careful consideration.
1. Violation of Terms of Service
Even though buying tradelines is legal, it may be against the terms of service of the credit card provider being used. If a violation is discovered, the account could be closed, negatively affecting both you and the seller.
2. Impact of Card Owner’s Behavior
As an authorized user, your credit is linked to the primary cardholder. Their financial behavior can significantly affect your credit score, whether positively or negatively. If they accrue high balances or miss payments, your score could suffer despite your lack of control over their actions.
3. Risk of Identity Theft
With identity theft occurring every minute in the U.S., becoming an authorized user on a stranger’s account exposes you to significant risks. You must provide sensitive information, including your Social Security number and address, which makes you vulnerable. Even reputable brokerage firms cannot guarantee the safety of your personal data.
4. High Costs with Uncertain Outcomes
Purchasing a tradeline can be costly, with expenses reaching thousands of dollars, and there’s no guarantee of an improved credit score. Some credit card companies do not report all authorized users, meaning your investment may not even appear on your credit report. Even if it does, a single tradeline may not be enough to affect your overall score, especially if you have multiple derogatory marks.
5. Potential Removal by Cardholder
The primary cardholder has the authority to remove you as an authorized user at any time, which would erase any positive payment history associated with the account from your credit report. This removal can lead to a decline in your credit score, as the benefits of good credit utilization and payment history will no longer apply to you.
What to Do Instead
Instead of buying tradelines, consider these safer alternatives to build or repair your credit:
Piggyback on a Family Member’s or Trusted Friend’s Card
This method differs from buying tradelines because it involves a personal relationship, eliminating financial transactions. You are likely to receive a credit card yourself, allowing you to learn and practice sound credit habits. Additionally, you may retain your status as an authorized user for a more extended period compared to buying access from a stranger.
Find a Co-Signer
Another option is to seek a co-signer for a loan or unsecured credit card. A co-signer assures the lender that you will make payments, and they are responsible if you fail to do so. This arrangement can provide you with access to credit and help establish a new tradeline.
Get a Secured Credit Card
A secured credit card is an excellent choice for those with low credit or minimal credit history. To obtain one, you must pay a security deposit, which typically matches your credit limit. For instance, a $500 limit will require a $500 deposit. Timely payments and maintaining a low credit utilization ratio can positively impact your credit score. However, ensure that your secured credit card reports activity to credit bureaus before committing to one.
Get a Credit Builder Loan
Credit builder loans are designed to help individuals build or improve their credit scores. Generally, rather than receiving the loan amount upfront, the lender locks it in an account. You then make scheduled payments towards this loan, which are reported as on-time payments to credit bureaus, helping you build credit over time. Reputable providers like Chime, Self, and Brigit offer various credit builder loan options.
Add Other Types of Bills to Your Credit Reports
Many regular monthly bills, such as utilities and rent, typically do not impact your credit score. However, services like Experian Boost allow you to include numerous bills, even subscriptions like Netflix or Disney+, to help enhance your credit score more rapidly.
Dispute Errors on Your Credit Report
Errors on your credit report can negatively affect your score. Utilize the free annual credit report available at annualcreditreport.com to review your records. Check reports from all three major credit bureaus (Equifax, TransUnion, and Experian) for discrepancies. Free services like Credit Karma can also monitor changes in your credit report, helping you promptly address potential credit theft.
Bottom Line: Buying Tradelines Is a Risky Idea
The temptation to quickly boost your credit score through tradelines is understandable, but the associated risks often outweigh the potential benefits. From the danger of falling victim to fraudulent brokers to the risk of identity theft, the pitfalls are significant. Opting for safer alternatives, such as secured credit cards and credit builder loans, can lead to improved credit scores over time. Furthermore, securing a co-signer for a loan or leveraging a financially responsible friend or family member’s credit account can provide additional benefits without the inherent risks of buying tradelines. While these methods aren’t immediate fixes, they require patience and the commitment to responsible credit practices to yield positive results.