As an entrepreneur, one of the most important parts of setting up your business is getting funding. Funding normally comes in loans or lines of credit, but without a good credit score, you will not be granted this all-important financial boost.
That’s where tradelines come in.
What Are Tradelines?
Generally speaking, “tradeline” is a term that creditors use to show the list of accounts on your credit report.
These accounts can be loans, credit cards, bills, and even mortgages. The tradelines identify and streamline this information, but they can also show the viewer data such as the lender’s name and address, the types of accounts they use, and when the accounts were opened.
This information is usually used when a lender is concerned about a debtor and needs to see how many debts they are falling behind on.
If you notice that one of your accounts is hindering your tradeline, then removing yourself from that account can boost your credit score. However, it should be stated that a lender is unlikely to let you leave an indebted account until a deal has been reached. If they do let you go, this can help you improve your chances of getting another loan for your business.
So how can you use tradelines to your advantage, and what are the risks when it comes to your business? Let’s find out.
Can I Buy Tradelines?
A new strategy to boost credit scores has emerged and there are secured websites already available to help this new endeavor. In this strategy, you find tradelines for sale, pay the account holder for the ability to use their account, and then let their good credit score boost your poor one.
This works through a feature already available in most accounts; the “Authorized User”. An authorized user is someone who didn’t open the account but is allowed to use it.
Normally there are three types of people who use the authorized user feature, they are; children, using their parent’s accounts for basics like bus travel; partners, adding to their spouse’s accounts for bills; elderly or disabled people who need help managing their money.
Although this was the intended use of the authorized user, there isn’t a limit to how many you can have or who they are in relation to you. Becoming an authorized user puts the account onto your tradeline, and with it comes the account’s credit score.
This means you can buy the right to become an authorized user and piggyback off of the original account holder’s good credit.
Positive Effects On Your Credit
Depending on your current credit history, buying tradelines can boost your credit from good to excellent. Be aware that this isn’t true if you are bankrupt or have other lingering black marks to your name.
Normally buying tradelines is used to change your good rating to excellent, nudging it into a better category. Although you will only go up by one grade, that change could be all you need to apply for a beneficial business loan.
These changes will appear on your credit report in just a month’s time, as it takes 25-30 days for your credit score to change.
Negative Effects On Your Credit
The only negatives you will find comes from misunderstanding what tradelines are. Here are a couple of common mistakes that people make when they don’t understand what they are doing:
- Joining Low Scoring Tradelines
Just as businesses are allowing those with lower credit scores to join accounts with high credit scores, there are some which do the opposite effect. Some customers will pay you to join their account and boost their credit score as authorized users. In this situation, your credit score will decrease due to the attachment.
This will not help your business grow and so you need to avoid this deal with strict caution.
- Thinking Tradelines Can Unfreeze Your Accounts
Sometimes fraud alerts can freeze your account, and depending on the bank, the only way to unfreeze them is to prove that you are the correct person.
Using tradelines doesn’t count as “new information”, so it cannot be used to prove your new location, name, or any other details.
- Thinking You Can Jump From Poor To Excellent
Credit scores are graded from poor, below average, average, good, and excellent. Most people are in the average to excellent range. You cannot use tradelines to move from poor to excellent as your poor status will likely come with black marks which are unacceptable at an excellent level.
Becoming an authorized user to an account that has an excellent credit score can improve your tradelines and therefore your credit report. With a better score, you can apply for more beneficial loans which can expand your business.
Saira is an expert on entrepreneurship, particularly in the aspect of financial management. She loves to give pieces of advice to readers aspiring to improve their funding in the business. She also provides a guide in making your business become a financially successful one.