Importance of Adding Tradelines To You Credit Report Red BF Blog

Importance of Adding Tradelines To Your Credit Report

Credit Scores are necessary to get additional credit, lower interest rates, obtain a mortgage, some apartments, and certain jobs. It can even affect your ability to obtain insurance and buy a car. You need a credit score to purchase almost everything that requires you to borrow money or prove your creditworthiness. Everyone wants a good or great score. However, there are steps you need to take to build up your credit score to where you need it to be. First, you need to have credit to obtain a credit score. You will also need different types of credit. Let’s talk about the importance of adding tradelines to your credit report.

Tradelines and Credit Score

Tradelines on your credit score are the different types of credit or the similar or same type of credit on your credit score.  The key factors that make up your credit score are:

Payment History – 35% of your credit score

Utilization – 30% of your credit score

Length of Credit History – 15% of your credit score

New Credit Accounts – 10% of your credit score

Credit Mix – 10% of your credit score

You may wonder why I need to worry about 10% of your credit score, without a credit mix you cannot have a payment or age history or utilization or new credit points. These factors do not come into effect if there is no credit mix. Hence, a new tradeline can improve your credit mix and utilization at the same time.

What Types Of Credit Do You Need

Here are the basic types of credit available to most people. The service provider for each will require your personal information to open accounts in your name.  Each will play a part in increasing your score by the credit mix you select.

These Are Personal Tradelines

Major Credit cards like Mastercard or Visa

Charge Cards like American Express

Retail Credit cards like JC Penney or Macy’s –are typically backed by a major financial institution.

Mortgages – can include home equity loans, a home equity line of credit, or cash-out refinancing.

Car Loans

Personal lines of credit

Personal loans

Student loans

Credit Builder Loans

Car Title loans (if you default)

Payday loans (if you default)

Debt consolidation or refinance loans

These are Business Tradeline for Business Credit Report

Business lines of credit

Net 30 business loans

Credit Mix

To have a favorable mix that can improve your overall credit score you should try to maintain at least three basic types of credit: revolving, installment, and open. A good mix of two to three credit cards (revolving), one or more installments (auto loans, home equity), and Charge cards like American Express. However, once you obtain this mix then the hard part begins.  You must pay each one on time and remain in good standing over time. You do not have to maintain a balance for your credit cards to obtain good or great credit. Keeping your credit utilization ratio under 10% is second to paying on time. Therefore, use your cards, make every attempt to pay on time, and pay those balances off each month. This is 65% of obtaining a good credit score.

Improving Your Credit File

There is no secret to improving your credit but having a good mix and remembering to pay on time. Hence you will begin to build up your credit history. Many people believe that you must maintain a balance to get and keep good credit.  I do not maintain a balance on any of my credit cards and have an 800+ credit score. However, I do use each of my credit cards monthly and pay off the balances each month.  To ensure that my credit card account remains in good standing I have automatic payments to pay the balances in full each month.  Hence, my Experian, Transunion, and Equifax credit files are excellent. Consider these types of credit for a new tradeline.

Secured Credit Card

A secured credit card is established by depositing funds into the account that can be used to pay off monthly credit card balances.  You are basically borrowing money from yourself to establish your own credit. You can start with a secure card to establish credit with Mastercard or Visa.  Most financial institutions have a secure card program. For most no credit score is required.

Retail Credit Cards

Retail Credit Cards are oftentimes easier to obtain. However, they can only be used at the retail store and typically have higher APRs and a lower credit limit than unsecured credit cards offered by the top credit card companies. The minimum credit score to apply is 300 but can go as high as 640+ depending on the retail store.

Unsecured Credit Cards

You will need a credit score between 670 to 850 to get an unsecured credit card. This range is based on the eligibility requirements of each financial institution. Also, the interest rate and rewards will play a role in your acceptance. However, that is why you may also find that scores between 580 to 669 may also be acceptable to obtain a card. Do your research as there are many opportunities for credit availability. However, these types of cards come with the greatest risk of becoming a financial burden as they typically have high credit limits. Also, these types are widely accepted everywhere, giving you a greater potential to overspend.  In 2022, the average credit card credit limit was $30,365 and the average credit card balance was up 13.2% to $5,910, according to Experian data. Overall credit card balances increase to $910 billion in 2022 per Experian.

Auto Loans

Dealerships will always check your credit score when you apply for a car loan. They typically require credit scores to be 661 or higher. You can obtain financing in the 500 to 600 range. However, the higher your credit scores the better your chances of obtaining the lowest interest rate with less restrictive loan terms.

Charge Card

American Express is the most popular charge card. To obtain an American Express Card you would need at least a 700-credit score, depending on the card. People with good to excellent credit are most eligible to get approved for an American Express card. However, this card comes with an annual fee of up to $695 per year, depending on the charge card. All balances must be paid for in full by the due date. American Express also offers credit cards with a $0 fee.

Mortgage Loans

To apply for a mortgage, it is recommended that you have a credit score of 620 or higher at the time you apply for a conventional loan. Hence, with a score below 620, the loan officer may be required to offer the loan at a higher interest rate. Thereby increasing your monthly mortgage payment.

Student Loan

A credit score of 600 to 700 is needed to apply for a student loan. If your score is below 600 you will need a creditworthy cosigner to obtain your loan.

Personal Loans

A personal loan is a collateral-free loan.  Therefore, you will need a credit score between 610 and 640 to obtain this type of loan. In order to receive the lowest interest rate available, you will need a score of at least 690.

Personal Line of Credit

To obtain a personal line of credit where the funds can be borrowed, repaid, and then borrowed again requires a credit history with no defaults, reliable income, and a credit score of 670 or higher.

Authorized Users

You can also ask family members or friends if you can be an authorized user of their credit Cards. An authorized user tradeline can boost your credit significantly boost your credit score if the person already has good credit. Authorized user tradelines will be added to your credit report when someone adds you as an authorized user if the credit card issuer reports authorized users. However, note that being an authorizer will not significantly impact your credit score. User Tradelines can be beneficial to improving your credit score especially if you have done all you can to improve your credit score but just need a few extra points.

Bad Credit

Before you attempt to increase your credit tradelines it would be best to address bad credit issues in your credit report. It is a waste of time to apply for new credit with low credit scores. Therefore, the first thing you should do is review your credit report for any negative information. Having bad credit will require some work on your part to improve the credit tradeline on your report. Hence, the first thing to do is to clear up any errors in your report.  According to Consumer Reports’ 2021 Credit Checkup survey, 34% of participants found at least one error on their credit report.

The next thing to do is review credit card limits and begin to reduce your balances down to below 10%. If your credit limit is $1,000 you will want to bring this down to $100.00. Your available credit limit should always be 90%. Hence, this behavior will have a positive impact on your credit score.

The third thing to do is resolve any collection issues you have on your credit report.  35% of your credit report is based on your payment history. Late payments that 30 days can have a negative impact on your credit score.  Therefore, bring all your lines of credit reported to all the major credit bureaus to current. This negative information cannot be removed if correct. However, credit reports are updated at least once a month. So, this negative information can become positive information in a relatively short time.

Finally, to help improve your credit score consider opening a secured credit card. This is the most effective way to increase your score. You can also lift your score by becoming an authorized user of a primary account holder of a friend or family member as mentioned above.

The Negative Side Of Losing Tradelines

How you handle losing tradelines is just as important as how you add tradelines. Losing tradelines can have a negative impact on your credit score.  When I paid off my car loan my credit score dropped from 850 to 825.  Without the mix of the car loan, I was left with various credit cards, one charge card, and the mortgage.  Even though an 825 is still excellent credit if your score is on the edge of being good this could be devastating.

An available option is a credit builder loan which is like a personal loan, auto loan, or mortgage. It is an installment loan with a fixed monthly payment. It reports to the major credit bureaus. They are not widely advertised and are typically offered by smaller financial institutions i.e., credit unions and community banks. It is best to keep up with the payments as the FICO Score and VantageScore pay the most attention to your payment history when compiling scores. Also, credit builder loans do not require good credit for approval. All that is required is enough income to make payments. You may have to provide personal information such as employment history, income, and balances in your checking and savings account.

Once you are approved for the loan you pay a set amount until the loan is paid off then the funds plus interest are released to you. Hence, you pay off the loan before you receive the funds. The reverse of a traditional loan as there is no risk for the bank. However, at the end of the loan, the funds can serve as an emergency fund or can be used to purchase a big-ticket item. The main bonus of this new tradeline will be the improvement to your credit score.

Adding Tradelines To Your Credit

Opening a new account is one of the ways to add a tradeline to your credit score. However, you should pace yourself.  Trying to open too many accounts at once will generate credit inquiries that could impact your credit score. It is a good idea to wait 90 days between new credit card applications per Bankrate.com.

Buying Tradelines For Your Credit Report

Buy tradelines are paying a third-party service to use another person’s tradelines. Be very wary of purchasing tradelines from tradeline companies because there is a possibility that you will open yourself to scammers.  These scammers prey on people by stealing their financial identity.  Be very careful not to give out your personal information to the wrong people. Also, many of these scammers are on the fringe of being illegal.  It is not illegal to purchase tradelines. However, you may open yourself to unscrupulous business practices and be flagged for suspicious activities. For example, Experian warns that buying tradelines could put you in danger of committing bank fraud.

Do not open yourself to Fishbait emails offering you a higher credit score quickly by purchasing tradelines.  These are all cons. Credit repair takes time and energy to improve your credit score. Finally, purchasing low-cost tradelines may not boost your credit score.  You could be out of a lot of money and have nothing to show for it. Purchasing some tradelines can cost between $250 to $500, some can cost as high as $1,000. A great way to increase credit lines is to follow the steps listed below.

How to Open New Credit To Increase Credit Lines

  • Know your current credit score.
  • Correct any negative or inaccurate information.
  • Turn any negative payment history into positive payment history by making on-time payments.
  • Resolve collection issues.
  • Pay down your balances to under 10%.
  • Research the type of credit needed to improve your credit mix.
  • Check to see if you are prequalified.
  • Apply for new credit every 90 days.
  • Hard inquiries into your credit will lower your score.
  • Use your credit wisely and responsibly.
  • Create a Budget.
  • Live below your means

What Personal Information You Will Need to Apply for Credit

  • Full Legal Name
  • Social Security Number
  • Mailing Address
  • Cell Phone number and or Email Address
  • Proof of Employment
  • Proof of Income
  • Housing Costs
  • Credit Report

The above steps are a great way to start your journey of adding additional credit lines. The importance of adding tradelines to your credit report will pay off in the long run by improving your credit mix.  This will lead to many financial doors opening with favorable credit products with the lowest interest possible.  Whether your goal is to improve your credit or increase your line of credit amounts the above tips will help tremendously.

Additional Resources:

How To Raise Your Credit Score 100 Points In 45 Days

How to Manage Credit Card Debt

What Hurts Your Credit Score The Most?

What Is The Purpose of a Budget?

The rich rules over the poor, and the borrower is the slave of the lender.

Proverbs 22:7 ESV
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