Are Tradelines Legal? The Better Way to Boost Your Credit
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Building credit the right way isn’t always easy.
For most people with bad credit, buying authorized user tradelines seems like an easy fix for your credit goals. But don’t let the temporary credit score increase fool you. Buying tradelines could backfire and leave you in a worse credit situation than you’re in now.
Read more to find out how buying tradelines works and the best alternatives to build your credit the respectable way.
How Does Buying Tradelines Work?
Unless you’re in the finance industry, the term “tradeline” likely isn’t part of your vocabulary.
Technically, a tradeline is any credit account that reports to the credit bureaus. This could be a credit card, personal loan, mortgage, or car loan. For the purposes of this article, we’ll be referring to credit cards.
Adding an authorized user to a credit card is lauded as one of the best ways for people with limited credit to start building their credit score.
Typically this isn’t a problem when you’re asking family or a close friend to add you to their account. However, buying tradelines is seen as deceptive and dishonest.
When you buy an authorized user tradeline, you’re essentially paying a stranger with good credit to add you to their credit card as an authorized user. Many people who do this go through a tradeline broker to facilitate the transaction. Here’s how it works:
- The tradeline company finds credit card users with good credit histories who want to add authorized users to their credit card accounts.
- The company facilitates the transaction between customers with bad credit and established credit card holders. The customer chooses how long they want to be added and how seasoned they want the account to be before paying a fee.
- The cardholder adds the customer to their credit card account and receives payment for doing it.
- Once the credit card reports to your credit file, ideally your credit score goes up.
There are other methods that don’t involve a third party, but this is arguably safer. Even though this method is safer, there’s still a fair amount of risk. We’ll talk about that more later.
After you’re added, you can’t use the card for purchases. It’s purely there to strengthen your credit report. In an ideal world, the cardholder continues paying their bill on time and keeps their credit utilization in check. You then benefit from that showing on your credit history.
Is Buying Tradelines Legal?
Technically, buying tradelines is legal. Currently, no federal or state legislation prevents people from buying or selling tradelines. While there has been legislation to ban the practice brought before Congress before, nothing is finalized yet.
The problem arises when the credit card issuer prohibits that behavior within the terms of the agreement.
Most credit card companies strictly prohibit buying and selling tradelines. They see it as a misrepresentation of your credit history and consider it as fraud.
To combat this, they’ve familiarized themselves with the signs of selling tradelines and immediately close down accounts that participate in it.
If you or the person you’re buying tradelines from gets caught, it could result in you being removed from the tradeline even if you’ve already paid the other person. That means you’re out of luck with the money you paid upfront as there are no refunds for this type of service.
How Much Does It Cost to Buy a Tradeline?
The cost of buying tradelines depends on how “seasoned” the tradeline is. A seasoned tradeline is an older, established account with a sizable credit limit and excellent payment history.
A less seasoned credit account (relatively new, lower credit limit, perhaps with a late payment and higher utilization) starts at about $200.
While it might seem like a good deal, a less seasoned account won’t do much to help your credit score. The trade-off is to pay more for a highly established account to see a better impact on your credit.
The more established the tradeline is, the better effect it may have on your credit score and the more money it will cost. Well-established tradelines are much more expensive and can reach up to $4,000.
Even though you might pay top dollar for your tradeline, there’s still no guarantee that it will result in a higher credit score since credit bureaus and lenders are trained to recognize this behavior and reduce any impact it may have on your credit score.
Is Buying Tradelines a Good Way to Build Credit?
Buying tradelines might seem like a quick fix to your credit problems, but it isn’t the best way to build credit. It makes you a secondary account holder which has a much smaller impact on your credit compared to being a primary account holder.
There are a few other reasons why buying tradelines isn’t the best move.
- The primary tradeline owner will typically remove you after about two months. Then the credit account gets removed from your credit report. Your credit scores go back to normal once this happens.
- People buy tradelines to pad their credit report before a credit application since the results are temporary. Lenders know how to identify piggybacking credit which results in a decline anyway.
- The cardholder has to have access to sensitive information, such as a copy of your driver’s license and Social Security number. That information could be used to commit identity theft.
Building credit is much more effective when you’re using accounts that are truly part of your credit report. Plus it’s much safer.
By getting tradelines as the primary account holder, a credit reporting agency can gradually build your credit score based on your credit habits.
While vendor tradelines might provide a short-term improvement, primary accounts help you build a solid credit report based on your own money management behaviors.
Alternatives to Buying a Tradeline
Renting tradelines is often marketed as an alternative to credit repair, but it’s not a true fix for credit issues.
If you want more than a temporary boost to your credit score, other options won’t cost nearly as much as buying a tradeline. Plus these will help you build a credit score that belongs to you, not someone else.
Get a Credit Builder Loan
Instead of piggybacking on someone else’s credit for a few short months, you could build your own credit with a credit builder loan.
These accounts are designed for people with limited or bad credit. Most times you’ll even be able to check your eligibility without a hard pull.
One of the best credit builder loans is the Revolv account from CreditStrong. It’s the only one of its kind and helps you build credit history while putting money away in a locked savings account. Revolv reports to all three credit bureaus as a revolving credit account, just like a credit card.
You get to choose your monthly payment (aka savings commitment) and after three consecutive on-time payments, your credit limit increases by $100. With Revolv, you can build credit without going into debt. See if you’re eligible without a hard credit pull and cancel at any time.
Get a Secured Credit Card
If getting an unsecured credit card is out of the question, try getting a secured credit card instead. These are one of the best credit cards designed to help people with bad credit and prior credit issues.
Secured credit cards require a security deposit usually from $300 to $500. That deposit becomes your credit limit. You can use the credit card for purchases and pay it off each month.
The downside is that the credit limit is much smaller compared to unsecured cards. The only way to increase it is to put down more money.
If you’re successful with managing your secured credit card account, you’ll often be able to upgrade to an unsecured credit card in about six months to a year with the chance to get your security deposit back.
Report Your Rent Payments to the Credit Bureaus
One of the most innovative ways to boost your credit score is to use an alternative credit reporting service.
Many allow you to get credit score increases from paying your regular bills, but the most effective ones will report your monthly rent payments to each credit bureau. That’s right. You can finally get credit for paying your rent.
With the right service and a small monthly fee, you can have your rent payments documented on your credit report. By using services like BoomPay or Esusu, you can get your monthly rent reported to all three credit bureaus.
Rental tradelines are innovative, but they still fall short in one area compared to a credit builder loan. Rent reporting helps in some circumstances, but it doesn’t improve your FICO 8 score, which is used by a large chunk of lenders when making credit decisions.
Also, lenders do not give the same weight to rental tradelines that they give to financial tradelines.
The superior tradeline to go with is a credit builder loan.
Overall, buying tradelines is seen as a deceptive practice by credit card issuers, lenders, and credit reporting agencies. For consumers seeking to build a good credit score, buying tradelines seems like a faster alternative to credit repair.
The risks associated with it far outweigh any potential benefits. Instead of piggybacking credit, try building credit by being the primary account holder. Open a credit builder loan, get a secured credit card, or use rent reporting services to earn good credit the honest way.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.