“How do tradelines work?”
It’s a question we hear all the time from people who are new to the tradeline industry. Perhaps you have even asked it yourself. In this article, we explain how tradelines work and how they can affect your credit.
While the term “tradeline” simply means any credit account, in our field, it usually refers specifically to authorized user tradelines, which are authorized user positions on someone’s credit card. An authorized user tradeline is an account on which you are designated as an authorized user, which means you are not liable for the charges incurred on the account. However, the tradeline can still appear in your credit file.
When someone is added as an authorized user on someone else’s credit card account, the history of the account is often reflected in the records of both the primary account holder and the authorized user. This is because credit reports do not show the date the authorized user was added to the account, but rather the date that the account was originally opened. So, after the authorized user is added, their credit report may begin to show years of history associated with the account.
One common example of this is when a parent designates their child as an authorized user on one of their credit cards as a way to help them establish a credit history at a young age. In fact, this practice of becoming an authorized user is frequently promoted by banks and financial education sites.
As we mentioned, tradelines can appear on your credit report. Each tradeline on your credit report has its own credit history that is also included in your file. This means it’s important to choose the appropriate tradelines considering what you already have in your credit profile.
As we discussed in our article on building credit, tradelines are the foundation of all credit, since your credit report is essentially a file made up of information about your tradelines and how well you manage them.
The biggest influences on your credit are your payment history, credit utilization, and credit age, so these are the most important factors to consider when thinking about the role each of your accounts plays in your overall credit picture.
These considerations apply to both primary tradelines and authorized user tradelines.
Tradelines have been around since the advent of the modern credit system. Virtually as long as credit cards have existed, people have wanted to be able to share access to their accounts with others, such as spouses, children, or employees.
However, the role of authorized users was not always considered equally by the credit bureaus. Until the Equal Opportunity Credit Act of 1974, creditors often used to report accounts that were shared by married couples as being only in the husband’s name. This prevented women from building up a credit history in their own names.
In response to this unequal treatment, ECOA was passed to prohibit discrimination in lending.
Regulation B is a section of ECOA that requires creditors to report spousal authorized user accounts to the credit bureaus and consider them when evaluating credit history. Since discrimination based on marital status is not allowed, this rule effectively requires the credit bureaus to treat all authorized user accounts the same.
It was as a result of this policy that the practice of becoming an authorized user emerged as a common and acceptable way for consumers with good credit to help their spouses, children, and loved ones build credit.
For more on the history of authorized user tradelines and the policies and regulations that govern the tradeline industry, read our article, “Do Tradelines Still Work in 2019?”
While Tradeline Supply Company, LLC does not provide legal advice, we can answer this common question by referring to official proceedings and statements from the authorities.
The issue of tradelines and authorized users went all the way up to the U.S. Congress in 2008, when FICO tried—unsuccessfully—to eliminate authorized user benefits from its credit scoring model. They ultimately reversed their stance and decided to keep factoring authorized user benefits into credit scores thanks to the Equal Credit Opportunity Act of 1974.
The Federal Reserve Board has also weighed in on this topic. In 2010, the Federal Reserve Board conducted a large-scale study on what they referred to as “piggybacking credit” and found that over one-third of the credit files that could be scored had at least one authorized user account in their credit profile, which shows that having authorized user tradelines is an extremely common practice.
In addition, banks, credit card companies, and financial education resources explicitly promote the practice of becoming a credit card authorized user, which shows that the practice is not only allowed but even encouraged.
Learn more about the issue of authorized user tradelines in our article, “Are Tradelines Legal?”
To add tradelines to your credit report, you can either open your own primary accounts or you can be added as an authorized user to someone else’s credit account.
For many people, it is difficult to start building credit on their own because creditors are hesitant to lend to someone with no credit history or a history of poor credit. This is why the authorized user strategy is an appealing option to those who are just starting out as well as those who are working on repairing and rebuilding their credit.
If you are seeking to add authorized user tradelines to your credit report, you can ask someone you trust to add you to one or more of their credit card accounts. However, there are a few caveats you need to keep in mind.
If you get an authorized user tradeline through a loved one or acquaintance, how long you stay on the tradeline is ultimately up to them. If you no longer want to be an authorized user, you may be able to remove yourself by calling the bank, or you may need to ask the primary cardholder to remove you.
If attaining a tradeline facilitated by our online platform, the tradeline will stay on your credit report for two reporting cycles, which is approximately two months.
After the two months of being an active authorized user is complete, you will be removed from the account and the tradeline will then appear as closed. A closed tradeline will often remain on your credit report for several years.
For more information on this, see our FAQ page on “How Long Do Tradelines Stay on Your Credit?”
The two main factors that you need to take into account when choosing a tradeline are age and credit limit. For most people, we recommend prioritizing the age of the tradeline, because age is usually the most powerful factor of a tradeline.
However, your strategy may vary depending on your specific goals. There are some situations in which the credit limit can be more important. Our in-depth tradeline buyer’s guide has all the information you need to help you choose a tradeline.
In choosing the right tradelines for you, it is helpful to be able to calculate your average age of accounts and utilization ratios. Need some help with the math? Try out our custom tradeline calculator, which does the work for you!
In addition, don’t forget to read our article, “The #1 Secret on How to Unlock the Power of Tradelines.”
How many tradelines you need depends on your specific situation. There are different cases in which consumers may want to get two or three tradelines, or sometimes even more, but there are other cases in which one tradeline will suffice.
If you really want to maximize your results and you have the ability to do so, getting multiple high-quality tradelines is ideal. However, if you are constrained to a limited choice of tradelines, it is usually best to focus your resources on one premium tradeline.
For more examples and information on how to decide how many tradelines to buy, check out our article, “How Many Tradelines Do I Need?”
Historically, only those with privilege and wealth have been able to use the authorized user strategy. Those who do not have family members with good credit to ask for help, or could not afford the high cost of tradelines, have nowhere to turn, so their options are limited and often costly.
To us, it does not seem fair that some people have the option of becoming authorized users but others do not. By making tradelines accessible to everyone, we aim to bridge this gap and help provide a chance at equal credit opportunity for all.