Tradelines. If you’ve searched on the Internet for ways to improve your credit score, you’ve almost certainly come across the concept of tradelines. However, there’s a lot of mystery surrounding tradelines. What are they? How do they work? Let’s take a look.

What Is A Tradeline?

A tradeline, simply put, refers to any account which appears on your credit reports. This could be a mortgage, auto loan, credit card, or student loan. If you run into trouble on one of those accounts (for example, you can’t pay your auto loan, and your car is repossessed), then this negative information will also be reflected on your credit reports. Negative accounts, like collections or bankruptcies, are also tradelines which appear on your credit reports.

Each account you pay on time helps your credit score. If we’re talking about a credit card, keeping a low balance on the card (under 30% of the card’s limit, ideally under 10%), will further help your score. The longer an account has been open (and paid on time), the more your credit score benefits.

Building Better Credit 

When you open a credit card, you’re responsible for your spending on the card, and are required to make monthly payments on the card. You can choose to pay off the full amount you owe on the card, or pay a smaller monthly minimum payment. 

You also get to choose how much you spend on the card. You can spend very little on the card, or you can max out your balance every month. Ideally, you’ll show a balance of 1% to 5% of the card’s limit. 

If you can’t afford that, you should at least try to keep your balance below 30% of the card’s limit. If you follow these rules consistently, across every credit card, you’ll certainly enjoy a strong credit score.

Now, what happens if you have poor credit, or you simply don’t have much credit? How do you build better credit?

One option (a very good one) is to open a secured credit card. Another thing you could try is opening a credit builder account. This allows you to build credit through money which is set aside in a savings account, and you make payments each month. These payments report to credit bureaus, allowing you to build a stronger credit score. Ideally, a smart credit building strategy will incorporate both of these approaches. 

How Does Authorized User Status Work?

There is one approach that costs you no money: becoming an authorized user on a credit card. As an authorized user, you have someone else with strong credit, add your name to their card. You’ll want to choose someone who always pays their credit cards on time, and does not spend too much on the card. 

Ideally, this person uses under 30% of the card’s limit – even better would be under 10%. Also, you should aim to choose someone who has had the card open for at least a few years. The older a credit card, the more it helps your credit score.

The person whom you choose will have to call their credit card issuer, and request that you be added to the card, as an authorized user. They’ll usually have to provide your name, date of birth, address and Social Security Number.

Once this information has been provided, the credit card issuer starts reporting this account on your credit reports, as an authorized user. Every month, the account will be updated on your credit reports. Previous on-time payments on the account, as well as the age of the existing account, both benefit your credit score. 

Here’s another interesting aspect of being an authorized user: You’re not responsible for making payments on the card. Whoever opened the card (and added you as an authorized user) is solely responsible for paying what is owed. 

Of course, you want to choose someone who is responsible – if they make a late payment on a card, or carry an excess balance, your credit score will be negatively impacted. That is why you want to select someone who is money wise and responsible, to add you as an authorized user.

You might have a question: Why would someone agree to do this? After all, anyone who has built strong credit, will be eager to protect it. Aren’t they going to put their credit at risk, by giving you access to their credit card (as an authorized user)?

Here’s the good news: They don’t have to give you access to the card. By simply having your name added as an authorized user, your credit score will benefit. There’s no need for you to have a physical copy of the card, or otherwise be provided with access to the account. So, you can build better credit, without putting anyone else’s credit at risk.

Buying Authorized User Tradelines: The Basics 

What if you don’t know anyone who has strong credit, and is able to add you as an authorized user? Or maybe folks whom you know, with strong credit scores, are hesitant to add you to their card? This is pretty common.

It’s perhaps for this reason that the sale of authorized user tradelines exists. Tradeline brokers, or tradeline sellers (both terms are commonly used) help you connect with someone who can add you as an authorized user – for a fee. Why would anyone agree to add you as an authorized user? 

Well, for one, many people are seeking to profit from their strong credit scores. Selling access as an authorized user is one way to do so. At the same time, there are so many people just like you, who are looking to improve their credit scores. It’s not surprising that this business exists

Sellers of tradelines usually charge more for cards which are older, or have higher limits. After all, the older an account, and the higher the limits, the more it benefits your credit score.

Tradelines might seem like a good solution, especially if you don’t have a friend or relative who can add you to their credit accounts. Unfortunately, it is not that simple. There are several reasons you should avoid buying authorized user tradelines

Questionable Legality of Tradelines 

FICO (the major provider of credit scores), as well as the big three credit bureaus, are aware that people are purchasing tradelines – and they aren’t particularly happy about it. In a 2008 New York Times article, Craig Watts, then an executive of FICO, raised questions about the legality of tradelines. “They’re falsifying the person’s credit history, and that’s one definition of loan fraud…..if the borrower is deliberately misrepresenting himself and his credentials to the lender, that’s loan fraud.” 

Watts stated that FICO was bringing concerns about tradelines to the attention of the Federal Trade Commission, FBI and other authorities. Watts isn’t the only one raising concerns. Experian warns that buying tradelines might be “perceived as deceiving the lender or even committing bank fraud.” While Experian and FICO are hardly unbiased sources (they are at the heart of the credit reporting industry), their concerns should give you pause.  Is improving your credit score really worth the possible legal risks – especially when there are far simpler, legal ways to improve your score?

Changing Credit Scoring Models Reduce Impact Of Authorized Users

In his comments to the New York Times, Watts also warned that credit scoring models were shifting, to limit the impact of people purchasing authorized user tradelines. Watts’ comments have been validated by changes implemented to newer versions of FICO. The FICO 8 credit score, which was introduced in 2009, differentiates between legitimate authorized user tradelines, and those which were purchased for the purpose of improving credit scores.

According to credit software provider DisputeSuite, under FICO 8, authorized user accounts are only counted if they are associated with an immediate relative, such as a sibling, parent or spouse. Thus, purchasing authorized user tradelines from a company will offer little benefit under FICO 8.  

Tradelines Can Be Closed Or Go Bad At Any Time

What happens if you’re an authorized user on a credit card, and the cardholder pays 30 days or more late on the card? Let’s say your favorite aunt adds you as an authorized user to her Chase Freedom card, and one month he forgets to pay one month. Your credit score will be negatively impacted – it could drop as much as 80 to 100 points.

The same is true in the case of excessively high credit card balances. Suppose your aunt makes a number of large purchases, and only pays the minimum amount on her credit cards each month.

Let’s also assume her credit card has a limit of $10,000, and she carries a balance of $8,000. She’s using 80% of her card’s limit, which is quite high. As a general rule, the lower one’s credit card utilization, the better.

If her credit card balances are too high, this can significantly reduce your credit score. Of course, once your aunt pays down her balance on the card, your score will increase – but it might take a while for her to do that.

What should you do in these situations, where the person who added you to the card paid late, or has an excessively high balance? You can request to have yourself removed as an authorized user from the card. Doing so will typically remove the account from your credit reports. If it doesn’t do so immediately, you should contact the credit bureaus, and ask them to remove you as an authorized user

However, this doesn’t leave you any better off than you were in the first place. You became an authorized user to build better credit – and because of the cardholder’s actions, you’re not any better off than before you became an authorized user.

Now, imagine you had purchased authorized user tradelines, and the cardholder pays late one month, or continues to carry an excessive balance. You’ve paid someone to help you build better credit – and since that has not happened, you’ve wasted your money

This is a real risk with buying tradelines. When you become an authorized user, you don’t have any real control over the behavior of the cardholder. If something goes wrong, and you have to be removed from the card, you’ve essentially given away your money for nothing. Why risk that

An Alternative To Tradelines

There is a very simple alternative to buying tradelines, which we discussed earlier: Build a better credit score on your own. Open secured credit cards, and pay them off on time every month. Make no more than one small purchase each month. Consider a credit builder account as well, to add an installment loan to your credit reports. And yes, if you have a friend or family member with excellent credit, who can add you as an authorized user to their credit card, that will certainly help as well.

If negative items appear on your credit reports, it makes sense to try to remove these negative items, if they don’t conform with legal requirements that they be accurate, verifiable, complete and not out of date. This is known as credit repair.

There are simply too many risks, both legal and financial, to purchasing authorized user tradelines. With changes to credit scoring models, the benefits are at best questionable. Don’t waste your time. You have better options.