One question we often hear is “Do tradelines still work in 2019?” Fortunately, we can say with certainty that tradelines do in fact still hold significant weight, and we are confident they will continue to remain effective for years to come. To explain our answer, we will delve into the history of authorized user tradelines and the policies that regulate our industry.
Although the term “tradeline” could refer to any account in your credit file, usually in our industry people use the word as shorthand for authorized user tradelines, or accounts on which you are an authorized user.
Credit card companies allow cardholders to add authorized users (AUs) to their accounts, which are people who are authorized to use the account but are not liable for any charges incurred. For example, a business owner could add an employee as an AU of their credit card, or a parent could add their child. When someone is added as an AU, often the full history of the account is shown in the credit reports of both the primary user and the AU, regardless of when the AU was added to the account. Therefore, the AU may have years of history associated with the account reflected in their file as soon as they are added. This is why obtaining an AU tradeline through a family member or friend is a common way for people to start establishing a credit history. In fact, studies estimate that 20-30% of Americans have at least one AU account.
Why are authorized users able to share the benefits of the primary user’s credit rating, even though they are not liable for the debt? This policy is a result of the Equal Credit Opportunity Act of 1974 (ECOA). At the time, creditors would often report accounts shared by married couples as being only in the husband’s name. This prevented women from building up a credit history and credit score rating in their own names, which in turn prevented them from being able to obtain credit independent of their husbands.
In response to this unequal treatment, ECOA was passed to prohibit discrimination in lending. The federal law made it illegal for creditors to discriminate on the basis of sex, marital status, race, color, religion, national origin, age, or receipt of public assistance. This means creditors may not consider this information when deciding whether to grant credit to an applicant or determining the terms of the credit.
Regulation B is a section of ECOA that specifically requires that creditors report spousal AU accounts to the credit bureaus and consider them when lenders evaluate credit history. Generally, creditors do not distinguish between AUs that are spouses and those that are not when reporting to the credit bureaus, which effectively requires the credit bureaus to treat all AU accounts the same. As a result of this policy, the practice of “piggybacking credit” emerged as a common and acceptable way for individuals with good credit to help their spouses, children, and loved ones build credit or improve their credit.
The practice of piggybacking is the foundation of the tradeline industry. In a piggybacking arrangement, a consumer pays a fee to “rent” an authorized user position on someone else’s tradeline.
It is understandable that there is some confusion about this since not many people are aware of the idea of tradelines for sale, although the practice has been in use for decades. While Tradeline Supply Company, LLC cannot provide legal advice, we can refer to several official sources, including the Federal Trade Commission, who have indicated that buying and selling tradelines is legal. Our goal is to provide equal opportunities to those without access to authorized user tradelines through friends and family by providing an online platform that allows for a greater network of connections.
Fair Isaac Corporation (FICO), the creator of the widely used FICO credit score, once tried to change its scoring model to eliminate the benefits of authorized user tradelines. But at a congressional hearing in 2008, Fair Isaac’s president admitted that they could not legally distinguish between spousal AUs and other users, because discriminating based on marital status would unlawfully violate ECOA. After consulting with Congress and multiple federal agencies, FICO was blocked from discriminating against AU account holders. Consequently, all AU accounts are still being considered in FICO 8, the most widely used credit scoring model.
Studies have shown that accounting for AU data helps make credit scoring models more accurate, so it is in FICO’s best interest to continue including AU accounts in their credit scores. FICO claims they have devised a secret method to distinguish between “real” AUs and those who are trying to “game the system,” but they have not disclosed what this method is. Our results show that AU tradelines remain an effective way to add information to an individual’s credit report, regardless of the relationship between the primary user and the authorized user. In fact, many banks actually promote adding authorized users for the specific purpose of boosting your credit score.
Credit scoring is a complicated process, and all lenders have their own guidelines when it comes to underwriting. FICO has many different scoring models, and the versions used to evaluate credit applicants vary widely between industries and even between individual lenders within the same industry.
Currently, the three major credit bureaus (Equifax, Experian, and TransUnion) use FICO version 8, which debuted in 2008. Consequently, this is also the version most lenders use for various types of credit, such as personal loans, student loans, and retail credit cards. However, according to FICO, the mortgage industry still relies on older FICO scores 2, 4 and 5. Auto lenders use FICO 8 in addition to FICO 2, 4 and 5. Credit card companies use 2, 3, 4, 5 and 8. As if this isn’t complicated enough, many lenders use proprietary credit-scoring guidelines specific to their businesses. As FICO’s website says, “It is up to each lender to determine which credit score they will use and what other financial information they will consider in their credit review process.”
As you can see from the wide range of versions used, lenders are extremely slow to adapt to changes in FICO’s credit scoring model. Their underwriting processes have been built around previous versions of FICO. All of the credit score data they have accumulated over time is only accurate for the particular version that was used to calculate it. For this reason, lenders tend to be very reluctant to introduce the latest FICO scoring model.
So, even if FICO were to successfully eliminate authorized user data in future credit scoring models, it is likely that it would take years, if not decades, for lenders to adapt to this change. And as the 2008 congressional hearing showed, FICO will face pushback from the federal government if they try to eliminate authorized user benefits again, so we doubt it will ever happen.
Consumers wouldn’t be happy about it, either. In the Washington Post, J.W. Elphinstone writes, “Other consumers besides credit renters stand to lose with the change, namely those for whom authorized user accounts were designed… there’s no way to distinguish these from the latest crop of strangers trying to augment their scores. Lenders who want to find out more information about others on credit card accounts are hindered by the Fair Credit Reporting Act and privacy laws.”
When FICO took the piggybacking issue all the way up to Congress in 2008, they made headlines in their fight against the practice. This was also during the same time that the subprime mortgage meltdown began which preceded the Great Recession. The entire mortgage industry had to be overhauled and many people assumed that the tradeline industry went down along with it. What did not make headlines is that FICO’s push to do away with the authorized user tradeline industry actually failed due to ECOA and the FTC affirming that the practice of selling tradelines is allowed.
The banks themselves promote credit card piggybacking among friends, family, and co-workers. Now, in 2019, this option is more affordable and accessible than ever through companies such as Tradeline Supply Company, LLC, who help provide people the same opportunities as the privileged by making it possible for nearly anyone to buy tradelines.