Are Tradelines Legal?

A tradeline is an entry that appears on your credit report when a consumer opens a new credit account. Experian, Equifax, and TransUnion are the three primary credit reporting bureaus. 

Each credit account has a tradeline. Tradeline legality usually applies to the controversial practice of “buying” or “renting” them.

How Buying Tradelines Works   

The process of buying or renting tradelines is usually facilitated by third-party organizations. The “piggybacking” process appeals to consumers seeking quick ways of improving their credit. Here, paying consumers become authorized users on someone’s credit card account. 

Acting as a broker, third-party organizations pay consumers with active credit card accounts. Lenders report authorized users to credit bureaus, which generates a tradeline.

Traditionally, authorized user tradelines involved parents adding children or one spouse adding another.

Authorized user arrangements are distinct from two consumers having a joint account. In a joint account, both parties are liable for complying with the credit agreement. 

Authorized users are only eligible for making purchases with the credit card. Legally, they assume no responsibility for ensuring any balance is repaid.   

Is It Legal To Buy Tradelines?     

Buying tradelines to build credit is not currently illegal…yet. It is often frowned upon by the bureaus. In 1974, The Federal Reserve’s Regulation B implemented a reporting requirement for any spouse added to a cardholder account. 

This rule allowed lenders access to the authorized user’s credit history if they choose.

FICO is the developer of the largest credit scoring model. FICO acknowledged how piggybacking might boost credit scores of potential authorized users without merit. When FICO launched its Score 8 model, it included a form of piggybacking detection.

Experian explained why purchasing tradelines represents an illegitimate practice. First, the authorized user pays the cardholder for allowing them account access. Second, most purchasing arrangements involve individuals that have never even met.

Further, Experian explained how buying tradelines deceive lenders and may constitute bank fraud. This may result from consumers misrepresenting themselves to potential lenders–manipulating their creditworthiness.

How Tradelines Affect Your Credit Score  

Credit scores are three-digit numbers that reflect a consumer’s credit “rating” in a range from 350 to 800. The calculation process involves evaluating a consumer’s credit history based on tradelines.

In the absence of tradelines, a consumer would lack any basis for calculating a credit score. Credit scoring models require at least one credit account that is active for six months.

Defining the types of tradelines and the factors involved in calculating credit scores are important for a more complete understanding. The two primary tradelines are revolving credit accounts and installment credit accounts.

The most common example of revolving credit accounts are credit cards. Credit card accounts allow ongoing purchases and flexible repayment options within credit limits.

The common types of installment accounts include auto loans and student loans. Installment loans feature a largely pre-determined set of terms. The borrower receives a lump sum, which is then repaid over a defined number of monthly payments.

FICO considers the following five primary factors when calculating your credit score:

• Payment History (35%): Consistently making timely payments is the largest single consideration.
• Amounts Owed (30%): How much overall debt a borrower has and (particularly) the credit utilization rate on revolving accounts. The utilization rate = current credit card account balance / maximum limit. Utilization rates should remain under 30%.
• Length of Credit History (15%): Considers the age of your credit profile.  
• Credit Mix (10%): Lenders prefer that consumers prove their creditworthiness using a “mix” of both revolving and installment accounts.
• New Credit (10%): Applying for or opening multiple new credit accounts are “red flags.”

Can Tradelines Hurt Your Credit?  

Tradelines are the components that make up your overall credit score. Tradeline accounts containing negative information will have an adverse effect on your credit.

Using the FICO scoring model, your payment history is the single largest factor (35%). Failing to make payments on time will hinder your score.

For example, those with good credit who have a payment over 30 days late may notice as much as a 100-point drop. Federal laws require lenders to wait at least 30 days until they report late payments.

Another possible concern exists for tradelines where consumers are only authorized users. What if a cardholder closes their account or removes you as an authorized user? Those lacking any other current tradelines may face major concerns.

The removal of a credit card tradeline might also hurt your credit utilization rate. Consider the following example:

Assume you have two credit cards, each with a $1,000 limit. Card A has a $500 balance and Card B has a $0 balance. Assume the cardholder removes you as an authorized user from Card B.

Current Utilization Rate: $500 / $2000 = 25%
New Utilization Rate: $500 / $1000 = 50% (well over the recommended 30% threshold)

If a cardholder removed you as an authorized user, it could also harm your credit mix. This may occur if the removed tradeline was the only revolving type of account on the credit report.          

How Much Does Buying A Tradeline Cost?      

Several websites now actively sell tradelines to U.S. consumers. Most advertised tradelines add prospective consumers to active cardholder accounts as authorized users. Some of the average, general price ranges for a tradeline are $150 to $4,000.

The two primary variables that influence pricing are the age and the credit limit of the account. The age of credit accounts has approximately a 15% influence on your FICO score. 

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