Tradelines affect credit reports in many great ways. They increase your worthiness of credit, make you eligible for receiving higher loans (with lower premiums) and are seen by creditors, government agencies and the like as standing in good position. However, tradelines can be a confusing topic for many people. Here are several mistakes you must avoid while buying them.
- How they Work
Most people, in my experience, purchase tradelines without fully understanding how they work (or even what they are). This makes them “easy pickings” for salesmen to take advantage of. In layman’s terms, “tradeline” is a term used to describe a recorded account on a credit report. It is a process of “piggybacking” off of a good-standing account via authorised users – to look good on your credit report. Knowing the age of the card (as well as the age of the tradeline) and the credit limit of the card are just two things you need to know about how to choose the right one. In general, your credit score (which depends on your credit limit) is determined by your payment history, amount owed, the length of the credit history, etc.
Do you know your credit score works? Not many people do, which is surprising – considering the fact that not knowing about your score can put you in the hole. Even so, a simple hour or two per day researching how building credit works will make understanding tradelines much easier. (Not to mention knowing how credit scores work will help you improve that score in the future.)
- Incorrect Usage
As mentioned previously, using tradelines incorrectly can have a world of consequences. Most authorised user tradelines are used in the following ways: becoming mortgage-eligible, obtaining business loans, opening a credit line for business, insurance policy approval, to get personal credit cards, and more. Always speak with a seasoned professional before buying tradelines of any stature.
Although tradelines are phenomenal for improving your credit score, the power of tradelines depends on what’s already in your file. Buying a 5-year old tradeline for an account that’s 10 years old makes no fiscal sense and is a waste of money. What is in your credit file impacts how much usefulness you will get from adding a tradeline.
Anybody can look at a $1,000 tradeline and assume that its high price means it’s a high-quality, premium tradeline. This could not be farther from the truth, as higher-cost tradelines do not improve the average age of their accounts. Nor does it lower their low utilization ratios. That’s why focusing on the higher ends of credit limits actually limits your probability of using tradelines successfully.
All in all, one thing you need to do—before anything else—is to calculate your numbers and see how they stand. Then you can use this data to properly analyse your credit score and see how it will be affected by adding new tradelines. At the end of the day, having a solid mix of different credit types is ideal for making the most use of the tradelines you buy. However, it’s not wise to purchase a multitude of authorised user tradelines and depend solely on them. This is because credit scoring models take your total mix of credit into account – having a lot of the same is bad news, lowering your credit score. This is why other credit types to include in your report could be installment loans or mortgage loans.