Tradelines are simple. There are only two main variables: Age and limit. Of course, price and posting dates are also important, but let’s set that aside for the moment.
If you want to see good results, you have to focus on age. Age makes up 50% of the credit score because 35% is payment history and 15% is the actual age. However, it is impossible to separate the age from the payment history or the payment history from the age, so in reality, these two categories are combined to form 50% of the credit score.
The other variable of a tradeline is the credit limit. The limit can affect the overall utilization ratio and possibly some other variables in the secret credit score algorithms, but mainly the overall utilization ratio. Since the amounts owed make up approximately 30% of the credit score, people tend to think that the limit of the tradeline is more important, but if you believe this, you are misinformed and you will not get the results you hope for.
Here’s the reason why the limit of a new tradeline does not help as much as people hope: if someone is trying to lower their overall utilization ratio, then that means they currently have high utilization on some of their credit cards.
For example, if someone has several cards that are maxed out, it may seem to make more sense to lower their overall utilization ratio by buying a high limit tradeline as opposed to paying down their cards. However, if they do this, they still have the same amount of cards that are maxed out, and that alone is a very powerful negative factor.
Adding one or two high limit cards does not change the fact that the person still has several maxed out cards, which, as we all know, lowers a credit score. Changing the overall utilization ratio has been shown to be a relatively weak variable when individual high-utilization cards are present. Individual high-utilization cards tend to outweigh the overall utilization ratio.
To illustrate another example, let’s look at it from the opposite perspective of someone starting with a high credit score and a large amount of available credit who sees their score drop after maxing out their cards. (This is a hypothetical example with made-up numbers just to illustrate the point.)
If this person maxes out one card, they only have a 10% overall utilization ratio, but their score might drop to 710.
If this person maxes out a second card, they only have a 20% overall utilization ratio, but their score might drop to 660.
If this person maxes out a third card, they only have a 30% overall utilization ratio, but their score might drop to 640.
Now, if this person were to add a tradeline with a $50,000 limit, the overall utilization ratio may drop back down to 20%, but they may not see any improvement to their score at all, which has to do with the fact that they have three maxed-out credit cards.
The take-home message is this: if someone has high utilization on multiple credit cards, changing the overall utilization ratio alone is not going to solve that problem, and they may not see a significant benefit.
The secret to using tradelines effectively is buying “seasoned” tradelines, which are tradelines that have significant age (generally at least two years). We estimate that as much as 90% of the power of a tradeline has to do with its age. However, just looking at the age of an individual tradeline alone is also not the correct way to shop for a tradeline.
The power of a tradeline will always be relative to what is already in someone’s credit report.
Therefore, the most effective way to choose a tradeline is to look at how the new tradeline will affect a person’s average age of accounts.
This is the secret key to unlocking the power of a tradeline. This factor alone is the most significant aspect of how tradelines work.
We have identified several possible age tiers of special significance, especially with respect to one’s average age of accounts. These special age tiers are:
Therefore, if someone has an average age of accounts of 1.5 years, then the next target would be to pass the 2-year mark with their average age of accounts. Similarly, if someone has an average age of accounts of 3 years, the next target would be to get their average age of accounts past 5 years, and so on.
Often people make the mistake of only looking at the age of a tradeline by itself and not taking into account how the tradeline will affect their average age of accounts.
For example, if someone determines that their average age of accounts is 5 years, they might conclude that any tradeline over 5 years old is what they need, so they might choose a tradeline that is 7 years old.
However, by only adding a 7-year-old tradeline, they would have only increased their average age of accounts from 5 years to 5.2 years, which obviously is not a significant change and certainly does not get their average age of accounts up to the next age tier.
To make this easy, we have created a Tradeline Calculator, which helps you quickly calculate your average age of accounts, and demonstrates how a new tradeline may affect this powerful variable.
Using our Tradeline Calculator to determine your average age of accounts will help guide you in choosing the best tradelines for your particular situation.
Additional resources on choosing tradelines effectively: