What Are Credit Tradelines and Do They Affect My Credit Score?

what are credit tradelines affect credit score

You know how much you depend on your credit report for almost everything in your life. If you have a bad credit report, you may be turned down for a job, an apartment, or a car loan. It can even cause your insurance rates to go up.

It can make living with a high quality of life very difficult. You want to get a handle on your credit score. That starts by knowing every aspect of your credit report and knowing how it affects your score.

Credit tradelines are a big part of your credit report. If you’re among the 40% of people who don’t know how credit scores are determined, you probably haven’t heard of them.

Would you like to know what credit tradelines are and how you can improve your credit scores? Keep reading to find out.

What are Credit Tradelines?

You want to start learning about credit tradelines by getting a copy of your credit report. You can do that for free over at AnnualCreditReport.com.

That site is jointly run by the three major credit bureaus: Experian, TransUnion, and Equifax. They allow you to get a free credit report once a year from this site.

When you pull your report, you’ll see a lot of information. You’ll notice where you’ve lived, your date of birth, and other basic information.

You’ll then see the list of credit accounts. These accounts are called credit tradelines within the credit industry. Each tradeline has the potential to impact your credit score.

Each tradeline will show the type of account it is. The most common tradelines are credit cards, installment loans (mortgage loans, student loans, personal loans) or a revolving line of credit.

Credit scoring agencies typically like to see a mix of different types of credit. They also want to see that you’re responsible with your payments and you aren’t using a lot of the credit that you have available. You can find out more about credit tradelines and how they can work on your credit report.

How Credit Tradelines Affect Your Credit Score

You might be tempted to think that the fewer tradelines you have open, the higher your credit score will be. That’s not necessarily true. More really doesn’t equate to better.

For example, if you have 5 credit cards open but you have them all maxed out, you’d have a low credit score than someone who only has one credit account open that they never use.

Credit tradelines impact your score because of the information that is contained in them. They reveal how much credit you have available, your outstanding balance, and your entire payment history.

How Credit Scores are Calculated

How do your tradelines impact your credit score? Let’s look at how credit scores are determined to answer that question.

There are two main credit scoring agencies: FICO and VantageScore. Both take their information from Experian, TransUnion, and Equifax to come up with your credit score. The big difference is in how they weigh that information.

For example, FICO uses your payment history to determine 35% of your score. VantageScore 3.0 weighs your payment history as 40% of your score.

The main factors in coming up with your credit score are largely the same. They are weighted differently which is why you may see different credit scores. The main factors in your credit score are:

  • Payment history
  • Balances vs. credit available
  • Age of credit accounts
  • Types of credit used
  • Recent credit inquiries
  • Amount of debt

Once you know that these are the things that matter in your credit score, you can easily see how the information in credit tradelines can become a great resource.

How to Improve Your Credit Score

You now understand what tradelines are and how they impact your credit score. How can you use them to your advantage to improve your credit score?

Fix Tradeline Errors

The first thing that you should do is take a close look at your tradelines. Notice if there are any errors on your credit report. It’s much more common than you think.

If you do spot errors on your report, you need to contact the credit reporting agency to get them removed as soon as possible.

Add More Tradelines to Your Report

Have you been paying your rent or utilities on time? You can add these tradelines to your credit report. You can also be added on as an authorized user of a credit card or as a co-signer on a loan. As long as these accounts are in good standing, they can have a positive impact on your credit score.

Lower Your Credit Utilization Rate

Your credit utilization rate can make up a sizable chunk of your credit score. You generally want to keep your balances at about 30% or below what you have available.

There are two ways to go about lowering your credit utilization rate. You can pay down your credit card and loan balances. You can also open another credit account and keep that balance at zero.

Be aware that if you do open a new credit account, you will have a credit inquiry which makes up a small percentage of your credit score. You may see a small drop in your credit score, but that will usually outweigh the benefits of having a lower credit utilization rate.

Get a Handle on Your Credit Score

You want to be empowered to make financial decisions for yourself. That starts by knowing what makes up your credit score.

Credit tradelines play a big role in your credit score. If you have a lot of accounts open that are paid on time and you have a low utilization rate, you’ll have a high credit score. On the other hand, if you have a few tradelines but you don’t pay your bill on time, that will have a negative impact on your report.

Do you want more frugal financial tips? Keep coming back to the blog for more great business and finance articles.

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