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Credit Card Tradeline 101: What You Need To Know
Often, when you are trying to get growth financing for your business, you’ll be asked for your personal credit score – which needs to be 680 or higher for most qualifications. But what if your score is lower? What can you do to quickly build up your personal credit so that you can grow your business? Adding a credit tradeline to your report might be the short-term solution you need.
Credit tradelines are an unconventional, but relatively common method of building up your personal credit. Whether you already have good credit and want to improve it by adding another tradeline, or you just need a boost before applying for a business loan or other large purchase, credit tradelines can get the job done, and this article will show you how.
What are credit tradelines?
Tradelines are essentially lines of credit that are extended to you by creditors, and a credit tradeline is any account that appears on your credit report. This includes both revolving accounts and installment loans.
They help to improve your credit score by demonstrating your ability to manage debt. The length of time that a tradeline remains on your credit report, as well as your payment history and credit limit, are all factors that contribute to your credit score.
How do tradelines work?
When you make timely payments on a tradeline, it shows creditors that you’re capable of managing debt. This can help improve your credit score over time. Additionally, the longer a tradeline remains on your credit report, the better it is for your score. So, if you can keep a tradeline open for a long period of time, it will have a positive impact on your credit score.
What are the benefits of tradelines?
There are several benefits of properly managed tradelines, including the following:
- Tradelines can help improve your credit score over time.
- The longer a tradeline remains open, the better it is for your credit score.
- Tradelines can help you qualify for loans and other forms of financial assistance.
- Tradelines can help you get lower interest rates on loans because you are a lower risk.
How do credit card tradelines help to improve your credit score?
Credit card tradelines are one of the most important factors in determining your credit score. Your credit score is a number that lenders use to determine your creditworthiness. The higher your credit score, the more likely you are to be approved for a loan.
One of the biggest factors that determine your credit score is your payment history. This includes whether or not you have made your payments on time. If you have missed payments or made late payments, this will negatively affect your credit score.
Another important factor in determining your credit score is your credit utilization ratio. This is the amount of debt you have compared to the amount of credit available to you. If you have a high credit utilization ratio, this will hurt your credit score.
Ideally, you should build your personal credit by adding accounts and managing them correctly by following best practices such as maintaining low utilization and paying your bills on time. When you make timely payments on your tradelines, this will help improve your payment history.
This is all great for those among us who have great credit scores already, but what if you have a low score and you need to give it a boost? In this case, you’ll need a secondary tradeline.
Types of tradelines?
There are two main types of tradelines: primary and secondary. Primary tradelines are lines of credit that are directly in your name on your report. Secondary tradelines are lines of credit that are in the name of a third party borrower, such as a credit card held by a family member.
A secondary tradeline allows you to benefit from the strong credit history of someone close to you, such as a family member or business partner, by being added to their accounts as an authorized user. Sometimes, this is also referred to as “Piggybacking”, and it essentially allows you to adopt the history of someone else’s line of credit. This does not mean that you’ll have direct access to their credit cards, but rather, you’ll have access to their positive payment history when it shows up on your own report.
The Consumer Financial Protection Bureau estimates that approximately 1 in 4 consumers first acquire credit history through secondary tradelines. The most common usage of a secondary credit tradeline is when a parent adds their child to their credit card as an authorized user. When the child later goes to qualify for their own tradelines, they will be starting with an already well established credit history.
How can tradelines help me build my personal credit so that I can grow my business?
Many of us did not have financially savvy parents to grant us the gift of perfect credit, but there are still ways that you can use secondary tradelines to grow your credit in the short term so that you can qualify for business financing. You simply need to find someone who can add you onto their positive accounts as an authorized user. Here are three recommended options:
1. A family member
This is the simplest and most stable way to build your score through secondary tradelines. Ask your family members who have strong credit if they will add you onto their cards as an authorized user. Explain that you do not need direct access to their cards or accounts, and that there is no risk to their credit history whatsoever.
2. A business partner
When your business needs growth financing, your chances of succeeding are higher if multiple applicants have positive credit. Therefore, your business partner may be willing to add you onto their credit cards as an authorized user so that your credit score can increase, thus giving your business access to greater funding options.
Sometimes, a business owner will even offer equity in their business to a new partner, specifically for the purpose of qualifying for loans. This is called a credit partner. A credit partner is someone who provides access to capital to a company in exchange for a share of its profits. This person may also be willing to add you as an authorized user to further increase the variety of financing options available to the business.
3. Purchased tradelines
A third, but less recommended option, is to purchase a tradeline from a company that offers them. Tradelines such as these are supplied by complete strangers, and are provided through a brokering service.
While purchasing tradelines is a proven method to quickly and legally repair your credit, it is still frowned upon by lenders, and should only be used as a short term solution.
Pros and Cons of Purchased Tradelines
There are both pros and cons to having purchased tradelines on your credit report. A tradeline is simply a line of credit that is connected to your name and reported to the credit bureaus.
The biggest pro of having purchased tradelines is that it can help to improve your credit score. This is because tradelines show lenders that you have a history of making on-time payments with low utilization. Having tradelines can also help you to qualify for loans and lines of credit that you might not otherwise be able to get, although this practice is frowned upon by some lenders.
There are a few risks associated with buying a tradeline. First, it is important to make sure that the tradeline you are buying is from a reputable source. There are a lot of scams out there, so it is important to do your research before buying.
Second, it is important to make sure that the tradeline you are buying is for the credit score you want to improve. Not all tradelines are created equal, and some will have more of an impact on your credit score than others.
Overall, the decision of whether or not to have purchased tradelines on your credit report is a personal one. You should weigh the pros and cons carefully before making a decision.
If you want to improve your credit score, one of the best things you can do is to add a tradeline. A tradeline is an account that is reported to the credit bureaus. This can be a credit card, a loan, or even utility payments. By adding a tradeline, you will increase the average length of your credit history, which will boost your score.
It is also worth consideration to have a third party tradeline added to your credit report to quickly adopt a strong history. This can be from a family member, business partner, or tradeline broker. Research thoroughly, and make the decision that is right for your specific situation.
If you follow these tips, adding a tradeline can be a great way to improve your credit score. And as always, if you need assistance with understanding your financing options, feel free to contact the team at MyBusinessCredit.com, and work with a knowledgeable professional who is ready to help!