If you’ve ever wondered what the difference is between a tradeline and a credit account, then you’re not alone. There’s a lot of confusion about these two terms even though tradelines and credit accounts are different names for the same thing. You can blame the credit bureaus for this confusion since they use the term tradeline instead of credit account in your credit report.
What is a Tradeline in Credit?
Tradelines are how your credit accounts appear on your credit report. Credit Bureaus organize your credit information according to your tradelines. And each separate tradeline on your credit report will generally contain the following information:
- Lender’s Name & Address
- Type of Account
- Partial Account Number
- Current Status
- Account Opening Date
- Account Closing Date
- Date of Last Activity
- Current Balance
- Original Loan Amount
- Credit Limit
- Monthly Payment
- Recent Balance
- Payment history
What are the Different Types of Tradelines?
Credit Bureaus categorize tradelines into two categories: revolving credit and installment loans. However, there are two other types of ‘tradelines’ that generally don’t appear in your credit report: hidden tradelines and alternate tradelines.
1. Revolving Credit
This category is mostly for credit cards or any credit account that allows you to revolve your debt to the next billing cycle by making a partial payment.
Other examples of revolving credit tradelines are Home Equity Lines of Credit (HELOC) and Personal Lines of Credit (PLOC).
2. Installment Loans
This category is for credit accounts that allow you to borrow a sum of money that you repay in installments over a set period of time. Examples of installment loans are Buy Now, Pay Later (BNPL), Mortgages, Auto Loans, and Student Loans.
3. Hidden Tradelines
These are credit accounts that don’t report to the credit bureaus, which excludes them from your credit report even though they should be listed as a tradeline.
An example of this was PayPal Credit, which used to be a hidden tradeline. But when Synchrony Financial bought Paypal’s Credit Portfolio in July 2018, they began reporting account activity to the credit bureaus and PayPal Credit began appearing as a Revolving Credit Tradeline called SYNCB/PPC (Synchrony Bank/PayPal Credit).
4. Alternate Tradelines
Alternate tradelines aren’t usually used by credit bureaus. Instead, it’s a term commonly used by creditors to describe other ways of proving that you’re creditworthy aside from tradelines.
An example of this is your payment history in terms of rent and bill payments, which could be used in your favor when it comes to manual underwriting.
Some alternate tradelines have also started to appear in credit reports. Experian for example now considers payment for services like electricity, natural gas, cable, internet, cellular, and other bills as a type of credit called Service Credit.
Why Tradelines Matter
Tradelines are the same as credit accounts, and they matter because your credit history with these accounts is used in calculating your credit score.
And your credit score affects your creditworthiness and whether or not you’re eligible for prime interest rates.
Some financial institutions also have minimum tradeline requirements before they approve you for a loan. For mortgages, it’s usually 3 tradelines that have been open for at least a year or 2 tradelines that have been open for at least 2 years.
Ideal Tradelines to Have
Since tradelines are vital when it comes to calculating your credit score, you’re probably wondering about the ideal number of tradelines that you should have.
Credit Mix is 10% of your FICO score but before you start applying for more tradelines, you should know that the Length of Credit History accounts for 15% of your credit score. And since credit bureaus take the average age of all your accounts into consideration (as well as the number of hard credit pulls), artificially inflating your number of tradelines is not a good strategy.
Of course, if you need a new credit card and you’re willing to put in the work to pay the balance on time, then by all means add more credit card tradelines. And since the length of credit history is a factor, it pays to keep those lines of credit open.
Another important thing to note is that installment loans that are nearly paid off have a significant impact on your credit score. So if you can, you should always have two installment loans running, a relatively new one, and another that’s close to being paid off.
It’s ideal to do so because once an installment loan is paid off, the account closes, which causes your credit score to take a hit even though you’ve done everything right. So if you want to avoid that, you should time it so that when an installment loan is about to be paid off, you have another one to take its place.
Can You Buy Tradelines?
You’ve probably heard of people buying tradelines before. And while the concept is absurd, it’s actually possible to buy a tradeline (whether or not it’s a good idea, we’ll discuss further in the article).
A tradeline can be sold due to a credit card feature called “authorized user.” This feature was designed as a way to build credit using another person’s credit card.
An authorized user is allowed to make a purchase using the credit card of the primary card holder. These purchases are then paid off by the primary cardholder and the tradeline appears on the authorized user’s credit report.
In some cases, the payment history and credit utilization of the primary cardholder can even positively or negatively affect the authorized user’s credit score.
This has resulted in some people paying to become an authorized user on a stranger’s credit card, essentially buying a tradeline.
Should You Buy Tradelines?
Believe it or not, buying a tradeline isn’t illegal. But that doesn’t mean that the Credit Bureaus approve of it though. Buying a tradeline is considered as deceptive behavior by lenders and credit bureaus. Whether or not they take action against this is a mystery though.
But a good reason not to buy tradelines is the danger of being negatively affected by it. You’re essentially putting your credit score in the hands of a stranger. Sure that person could be financially savvy, making all their payments on time and ensuring that they have low credit utilization. But there’s always a chance of them missing a payment or going over 30% credit utilization due to an emergency.
Another reason not to buy tradelines is the fact that the positive boost is temporary. The person that you bought the tradeline from will eventually remove you as an authorized user (probably to sell the spot to someone else), and when that happens, all the positive effects of your tradeline purchase will disappear.
FAQ
Why would someone buy a tradeline?
Buying a tradeline can result in an immediate boost to your credit score but it can also result in an immediate decline depending on the credit history of the person you bought the tradeline from.
How much will a tradeline boost my credit?
A tradeline is just another term for a credit account so tradelines and your credit history with them are the main factors used in determining your credit score.
How do I get a credit tradeline?
Applying for a credit card, an installment loan, a mortgage, or any financial service from an institution that reports to the credit bureaus will add a tradeline to your credit report.
Do closed accounts still appear on my tradelines?
Yes, closed accounts stay on your credit report for up to 10 years.
Can I remove negative information from my tradelines?
If the negative information is false, disputing it can cause it to be removed from your credit report.
What should I do if I find errors on my tradelines?
Write a letter to the credit bureaus that contains any evidence that supports your dispute.
Conclusion
Tradelines are how your credit accounts appear on your credit report. Credit Bureaus organize your credit information according to your tradelines.
Purchasing a tradeline is possible but it’s not recommended due to its deceptive nature and potential to negatively affect your credit score.
Ideally, you should have one or more revolving credit tradelines that have been open for at least a year.
As for installment loans, having one that’s close to being paid off is a huge boost to your credit score. The boost ends when the account is closed though, so it’s optimal to have another installment loan to replace one that’s about to be paid off.
