What Is a Tradeline and How Does It Affect Your Credit?

The days of “cash is king” are over. Sure, anyone will accept cash payments, but you won’t get very far without a good credit report. For example, maybe you’re ready to start a family and are looking to buy a house in a couple of years. The first thing you need to do is look at your credit report. You may be surprised at what you find.

Even if your credit isn’t ideal at the moment, it’s important to understand exactly what that report entails. A huge part of your credit score is derived from tradelines reported to the credit bureau. So let’s take a look at what they are, what they mean for you, and how to use them to optimize your credit score.

What are tradelines, and how do they affect you?

A tradeline is simply a term credit bureaus use to describe each account on your credit report. Every credit card account, personal loan, vehicle loan, or mortgage is a tradeline. Together they make up the lion’s share of your credit report. Your overall credit score is largely the product of the information they contain.

Tradeline contents

Tradelines include detailed data about your account status, such as credit limits, current balances, and dates of last activity. They also include your payment history, which shows if you pay your bills on time or are late or even delinquent. Payment history is a critical factor in calculating credit scores, which underscores (pun intended) why paying your bills on time is so important to your overall credit.

Tradeline effects

Whenever you wish to obtain a line of credit or loan, lenders will look at your credit report to determine if you are a good risk for that loan or credit account, based on your credit score. Basically, the lender wants to know how likely you are to pay back the money you borrow. Credit scores help them to decide, not only whether to lend to you but also what interest rate to offer you. You may still get the loan, but if your credit is less than stellar, the interest rate may be very high.

What are tradelines on your credit report?

Tradelines on your credit report refer to each line item of credit you accrue, be it a credit card, auto loan, or a mortgage.

Credit reports are usually updated monthly to reflect your most recent history. Lenders and creditors want to examine your credit score to determine that you’ve been responsible with your finances, both historically and currently, before deciding to award you credit or a loan.

Examples of tradelines on a credit report

Tradelines on your credit report include two major kinds: revolving and installment.

Revolving tradelines encompass major credit cards and store cards. You are given up to a certain amount of money, say $1,000, which you are free to borrow, in any amount up to that limit, at any time you want. Then every month, you must pay at least the minimum payment required by the creditor in order to remain in good standing with that credit account.

Installment tradelines include items such as personal or auto loans or mortgages. You borrow X amount of money upfront at an agreed-upon interest rate and pay the money back over the life of the loan in fixed monthly installments.

What are tradelines used for?

Tradelines are used for a number of purposes. Most of these involve helping people decide if they can safely lend you money or feel assured that you will pay your bills on time. The history of your tradelines might be the deciding factor on whether a landlord will rent you an apartment, for example. Or it might help credit card companies decide if they are willing to extend you a line of credit.

Most significantly, tradelines, not just your overall credit score, can make or break your chances of being able to buy a house and get a home mortgage at a competitive interest rate without doing anything dishonest or illegal. Ditto your chances of refinancing a mortgage you already have. Lenders want to see that you have a solid credit history. By analyzing the tradelines, they can determine if you’re a good credit risk.

How tradelines affect your credit

If you show a solid credit history of paying your bills on time and paying your loans off on schedule, you will achieve a great credit score, right?

Paying on time doesn’t guarantee good credit

Unfortunately, that isn’t always the case. You also have to avoid taking full advantage of your spending limits. Even if you always make payments on time, for example, if you’ve used up a large percentage of your available credit, that can lower your score.

But failing to pay on time definitely hurts

Even worse is to be late on your payments. Credit bureaus typically categorize late payments as 30-days, 60-days, or 90-days late. All of these speak poorly for your credit history, but obviously, the later you are, the worse it is for your credit score. And defaulting on a loan is the worst. Remember that negative entries stay on your report for at least seven years.

And so does avoiding credit entirely

Too few tradelines can negatively affect your credit, too. It may seem counterintuitive to have a poor credit score when you haven’t done anything wrong yet, but a dearth of tradelines does suggest inexperience with managing credit and other debts. As the graph below indicates, adding a tradeline in good standing to your credit history can have a positive effect.

Especially if you are looking to finance a house soon, you should consider opening a credit tradeline or two — then manage them wisely — to build up your positive credit history.

Monitoring your credit report

Fortunately, monitoring your credit is easier than ever these days. Once a year, you are entitled to a free copy from the major credit reporting agencies — Experian, TransUnion, and Equifax — and it’s an excellent idea to get one. Beyond that, there are a ton of websites where you can monitor your credit on a daily basis. Many are completely free (or charge minimally) and offer tips on how to boost your score. You can also sign up to receive alerts and find out right away if there appears to be any fraudulent activity.

Things to watch for

Here are a few things to remember as you keep an eye on your credit score. Identity theft is a big one, so you definitely want to routinely make sure there are no new accounts in your name. You also want to track how your score is changing. Has it gone up or down recently, and why? In the details of the tradelines, you should be able to determine the cause. Maybe you missed a payment, and your score went down, or maybe you paid off a credit tradeline, causing your score to gain some points.

And don’t forget to look for inaccuracies in your report. If you do notice something wrong — say the report shows a late payment that you know you made on time — contact the credit bureau directly to dispute it. The Federal Trade Commission (FTC) offers this sample letter for guidance.

Remember to stay well below your credit limits

Finally, be careful you don’t get too close to your credit limit. It can hurt your score to max out your credit limits. You should make sure your credit utilization ratio doesn’t go above 30%. As an example, if you have a total credit limit of $30,000, you should keep the revolving amount at or below $9,000.

Too few tradelines can affect your credit negatively. Consider opening a credit tradeline or two — then manage them wisely — to build up your positive credit history.”

How many tradelines do I need for a mortgage?

To obtain a home mortgage, you should have a minimum of three tradelines in good standing. They can include a combination of items such as credit cards, personal loans, or student loans, and they must have been active within the last couple of years. It’s important to remember that a mortgage company does not want to see that you have too little credit — it shows inexperience with handling credit and can make you appear a higher risk. Aim for a healthy credit mix.

Conversely, it can also hurt your chances of being granted a mortgage if you show too many credit accounts on your report. In one sense, if your accounts are all in good standing, it really doesn’t matter if you have a lot of available credit. On the other hand, if you have recently opened several new credit tradelines, it could indicate to the lender that you are in financial trouble. Keep in mind that new credit inquiries also affect your credit score, so try to keep them to a minimum.

Is purchasing tradelines legal?

Technically, yes, but it’s not a great idea. Buying tradelines can raise your credit score, but it’s not a true reflection of your habits and could get you into trouble down the road. It can also cost a lot of money, and you could get scammed in the process. If you’re struggling to add tradelines on your own, ask a family member or loved one to list you as an authorized user on a credit account. You don’t necessarily have to use the card to get positive credit reporting, so having an authorized user tradeline is a safer way to elevate your credit score. Some credit reporting agencies might even let you use your payment history of phone, cable (or streaming service), and utilities as credit boosters.

What is the difference between primary and authorized users?

The primary account holder of a credit card is the person to whom the card was issued. This person’s credit score is why the card has the specific spending limit it does and why it was issued in the first place. An authorized user is someone granted access to that credit by the primary account holder. The authorized user’s credit score, in this case, good or bad, is irrelevant. It affects neither card approval nor spending limit. However, becoming an authorized user can help to raise your score, potentially taking it from bad credit to good.

How can I build better credit?

Keep your accounts in good standing. Pay your bills on time — your payment history is a big part of your credit score — and try to keep your debts low . If your credit is a little thin, meaning you have less than three tradelines, you can improve your score by adding an account. Even a simple store credit card that you pay off regularly can boost your credit score. Furthermore, you should generally try not to open and close accounts more than necessary. If you’ve paid off some credit card accounts, for example, continue to leave those credit tradelines open. Closing accounts can also negatively affect your credit report.

Try this to improve your credit score

In today’s world, you need good credit to finance many of your dreams — be it a new car or a home of your own. That’s why understanding your credit report and the effect of credit tradelines is so important to your future.

If you already know you have some credit problems, please read our complete guide to the best companies that can help with that. If you don’t have any credit issues yet and want to keep it that way, consider credit monitoring.