One question we often hear in the tradeline industry is “Do tradelines still work in 2021?”
Fortunately, we can say with certainty that tradelines do still work in 2021, and we are confident they will continue to be effective for years to come.
To explain our answer, we will delve into the history of authorized user tradelines and the policies that regulate the tradeline industry.
Why Do Tradelines Work?
Although the term “tradeline” could refer to any account in your credit file, usually in our industry people use the word as shorthand for authorized user tradelines, or accounts on which you are an authorized user.
Credit card companies allow cardholders to add authorized users (AUs) to their accounts, which are people who are authorized to use the account but are not liable for any charges incurred. For example, a business owner could add an employee as an AU of their credit card, or a parent could add their child.
When someone is added as an AU, often the full history of the account is shown in the credit reports of both the primary user and the AU, regardless of when the AU was added to the account. Therefore, the AU may have years of credit history associated with the account reflected in their file as soon as they are added.
This is why obtaining an AU tradeline through a family member or friend is a common way for people to start establishing a credit history. In fact, studies estimate that 20%-30% of Americans have at least one AU account.
Why are authorized users able to share the benefits of the primary user’s credit rating, even though they are not liable for the debt? This policy is a result of the Equal Credit Opportunity Act of 1974 (ECOA).
Before ECOA was passed, creditors would often report accounts shared by married couples as being only in the husband’s name. This prevented women from building up a credit history and credit score rating in their own names, which in turn prevented them from being able to obtain credit independent of their husbands.
In response to this unequal treatment, ECOA was passed to prohibit discrimination in lending. The federal law made it illegal for creditors to discriminate on the basis of sex, marital status, race, color, religion, national origin, age, or receipt of public assistance.
This means that creditors may not consider this information when deciding whether or not to grant credit to an applicant or determining the terms of the credit.
ECOA was passed in large part to prevent creditors from discriminating against women and to provide equal credit opportunities to women.
Regulation B is a section of ECOA that specifically requires that creditors report spousal AU accounts to the credit bureaus and consider them when lenders evaluate a consumer’s credit history.
Generally, creditors do not distinguish between AUs that are spouses and those that are not when reporting to the credit bureaus, which effectively requires the credit bureaus to treat all AU accounts in the same way.
As a result of this policy, the practice of “piggybacking credit” emerged as a common and acceptable way for individuals with good credit to help their spouses, children, and loved ones build credit or improve their credit.
The practice of piggybacking is the foundation of the tradeline industry. In a piggybacking arrangement, a consumer pays a fee to “rent” an authorized user position on someone else’s tradeline. The age and payment history of that tradeline then show up on the consumer’s credit report as an authorized user account.
Are Tradelines Legal?
It is understandable that there is some confusion about this since not many people are aware of the idea of tradelines for sale, although the practice has been in use for decades.
While Tradeline Supply Company, LLC cannot provide legal advice, we can refer to several official sources, including the Federal Trade Commission, who have indicated that it is legal to buy and sell tradelines.
While tradelines are not illegal, historically, they have not been accessible to everyone. The high cost of tradelines meant that only the wealthy could afford to purchase tradelines for credit piggybacking. Today, however, innovations in the industry have lowered the cost of tradelines, making them affordable to a much wider audience.
Tradeline Supply Company, LLC is proud to be leading the tradeline industry in automating the process of buying and selling tradelines, offering some of the lowest tradeline prices in the industry, educating consumers on the credit system, and making tradelines accessible to everyone.
Our goal is to provide equal opportunities to those who do not have access to authorized user tradelines through friends and family by providing an online platform that allows for a greater network of connections.
But Didn’t Credit Card Piggybacking Get Banned?
Fair Isaac Corporation (FICO), the creator of the widely used FICO credit score, did try to change its scoring model to eliminate the benefits of authorized user tradelines, although they were ultimately unsuccessful. The firm announced that they were planning to devise a way to allow “real” AUs to keep the benefits of their AU tradelines while at the same time discounting the value of AU tradelines for consumers who FICO deemed to be “gaming the system.”
FICO admitted to Congress that they could not legally discriminate between AUs based on marital status due to ECOA.
While this statement understandably caused a lot of concern among consumers of tradelines, as it turns out, FICO was never able to implement this change in their scoring system.
At a congressional hearing in 2008, Fair Isaac’s president admitted that they could not legally distinguish between spousal AUs and other users, because discriminating based on marital status would unlawfully violate ECOA.
After consulting with Congress and multiple federal agencies, FICO was blocked from discriminating against AU account holders. Consequently, all AU accounts are still being considered in FICO 8, the most widely used credit scoring model.
In addition, studies have shown that accounting for AU data helps make credit scoring models more accurate, so it is actually in FICO’s best interest to continue including all AU accounts in their credit scoring models.
In working with thousands of consumers over the years, our results prove that in 2021, AU tradelines still remain an effective way to add information to an individual’s credit report, regardless of the relationship between the primary user and the authorized user.
Here’s another piece of evidence that proves that authorized user tradelines still work in 2021: many banks actually promote the practice of becoming an authorized user for the specific purpose of boosting one’s credit score. To see this for yourself, all you need to do is go to any major bank’s website and search for “authorized user.” You are almost guaranteed to see several articles pop up that talk about becoming an authorized user in order to build a credit history.
How Do We Know Tradelines Will Continue to Work in the Future?
Most widely used credit scoring models still include authorized user “piggybacking” accounts.
Given that FICO has already targeted the tradeline industry before, it makes sense to wonder whether tradelines will still work in the years to come if FICO eventually does succeed in coming up with a way to discriminate against certain AUs.
Thankfully, we can rest assured in knowing that the tradeline business will be around for a long time. The reason that we can be sure of this is that the credit industry is extremely slow to adapt, so even if FICO were to roll out a new credit score model that can tell which AUs purchased their tradelines, it would take years, if not decades, for this new credit score to be adopted across the entire financial industry. Let us explain why this is the case.
Credit scoring is a complicated process, and all lenders have their own guidelines when it comes to underwriting. FICO has many different scoring models, and the specific versions used to evaluate credit applicants vary widely between different industries and even between individual lenders within the same industry.
Currently, the three major credit bureaus (Equifax, Experian, and TransUnion) use the version called FICO 8, which debuted in 2008. Consequently, this is also the version that most lenders use for measuring consumer risk for various types of credit, such as personal loans, student loans, and retail credit cards.
However, according to FICO, the mortgage industry still relies on the much older FICO score models 2, 4, and 5. Auto lenders sometimes use FICO 8, while many still use FICO 2, 4, and 5. Credit card companies may use versions 2, 3, 4, 5, and 8.
As if this isn’t complicated enough, many lenders also use proprietary credit-scoring guidelines specific to their businesses. As FICO’s website says, “It is up to each lender to determine which credit score they will use and what other financial information they will consider in their credit review process.”
As you can see from the wide range of versions used, lenders are extremely slow to adapt to changes in FICO’s credit scoring model. In addition, their underwriting processes have been built around previous versions of FICO. All of the credit score data they have accumulated over time is only accurate for the particular version that was used to calculate it.
Transitioning to a completely new credit score model would require businesses to expend significant resources on updating their technological systems, collecting and analyzing new consumer data, training employees, and possibly incurring financial losses as a consequence of not being able to rely on the consumer data they collected while using older credit score models.
For these reasons, most lenders tend to be very reluctant to introduce the latest FICO credit scoring model.
Lenders use credit scoring models that are specific to their industries, so they tend to resist changing to newer models. Photo by InvestmentZen.
So, even if FICO were to successfully eliminate authorized user data in future credit scoring models, it is likely that it would take years or even decades for lenders to adapt to this change.
In addition, as the 2008 congressional hearing showed, FICO will face pushback from the federal government if they try to eliminate authorized user benefits again. It is highly unlikely that a large company like FICO would want to risk being shut down by the federal government for violating the law.
Consumers wouldn’t stand for it, either. In the Washington Post, J.W. Elphinstone wrote, “Other consumers besides credit renters stand to lose with the change, namely those for whom authorized user accounts were designed… there’s no way to distinguish these from the latest crop of strangers trying to augment their scores. Lenders who want to find out more information about others on credit card accounts are hindered by the Fair Credit Reporting Act and privacy laws.”
Final Thoughts
When FICO took the issue of piggybacking all the way up to Congress in 2008, they made headlines in their fight against the practice.
This was also during the same time that the subprime mortgage meltdown began which preceded the Great Recession. The entire mortgage industry had to be overhauled and many people assumed that the tradeline industry went down along with it.
What did not make headlines is that FICO’s push to do away with the authorized user tradeline industry actually failed due to the government upholding ECOA and the FTC affirming that the practice of buying and selling tradelines is allowed.
The banks themselves even promote credit card piggybacking among friends, family, and co-workers.
Credit cards are not only a useful payment method for making purchases but also an essential component of a solid credit-building strategy.
After all, credit cards are the most common form of revolving credit, which is given more importance than installment credit (e.g. auto loans, student loans, mortgages, etc.) when it comes to calculating your credit score.
Unfortunately, credit cards often get a bad rap because it’s easy to rack up excessive amounts of debt and destroy your credit score if you do not know how to use credit cards properly.
However, when you have the knowledge and ability to use credit cards to your advantage rather than to your detriment, they can be an extremely powerful financial tool to have in your arsenal.
If you’re unsure if using credit cards is the right choice for you or confused about how they work, then keep reading to learn the basics of credit cards that everyone should know.
What Is a Credit Card?
A credit card is a card issued by a lender that allows a consumer to borrow money from the lender in order to pay for purchases.
The consumer must later pay back the funds in addition to any applicable interest charges or other fees.
They can choose to either pay back the full amount borrowed by the due date, in which case no interest will be charged, or they can pay off the debt over a longer period of time, in which case interest will generally accrue on the unpaid balance.
Each credit card has an account number, a security code, and an expiration date, as well as a magnetic stripe, a signature panel, and a hologram. Most credit cards also now have a chip to be inserted into a chip reader rather than swiping the card at the point of sale. In addition, some credit cards offer contactless payment capability.
Credit cards allow consumers to pay for goods and services with funds borrowed from the credit card issuer.
How Do Credit Cards Work?
Although using credit cards may feel like using “fake money” or spending someone else’s money, it’s important to understand that the money you borrow when you pay with a credit card is very much real money that you now owe to the lender.
Credit Cards Are Unsecured Revolving Debt
With most credit cards, the funds you borrow are considered to be unsecured debt because you are borrowing the money without any collateral. That means the credit card issuer is taking on additional risk by giving you a credit card, since there is no collateral that they can take from you if you fail to pay back the debt, unlike with secured debt, such as a mortgage or a car loan.
Furthermore, the lender allows you to decide when and how much you want to pay back the funds instead of requiring you to pay the full balance on each due date. You can choose to only pay the minimum payment and “revolve” the remaining balance from month to month, which extends the amount of time during which you owe money to the credit card company.
Most credit cards now come with a chip in addition to a magnetic stripe.
For the above reasons, credit card interest rates are typically significantly higher than the interest rates for installment loans.
However, credit cards are also the only form of credit where paying interest is optional—there is a “grace period” of at least 21 days before the interest rate for new purchases takes effect, and you only get charged interest if you do not pay back your full statement balance by the due date.
(Keep in mind that the grace period usually only applies to new purchases, as stated by The Balance. This does not include balance transfers or cash advances, which typically begin accruing interest immediately.)
Understanding Credit Card Interest Rates
To reiterate, the interest rate of a credit card technically only applies when you carry a balance instead of paying off your full statement balance each month. However, most people will likely end up carrying a balance on one or more credit cards at some point, so it is still a good idea to be aware of what your interest rates are.
APR and ADPR
The interest rate of a credit card is usually expressed as an annual percentage rate (APR). This is the percentage that you would pay in interest over a year, which can be confusing because interest on credit card purchases is charged on a daily basis when you carry a balance from month to month.
You can find your average daily periodic rate (ADPR), which is the interest rate that you are being charged each day, by dividing the APR of your card by 365.
Average Credit Card Interest Rates
The interest rate of a credit card, expressed as the APR, is important to know if you ever carry a balance on the card.
As of October 2020, the average credit card interest rate as reported by The Balance is 20.23%. However, credit card issuers are allowed to set their APRs as high as 29.99%. It is not uncommon to see APRs upwards of 20%, even for consumers who have good credit.
The highest interest rates are generally seen on credit cards for bad credit or penalty rates that credit card issuers can implement when you are 30 or more days late to make a payment. You may also get penalized with a higher interest rate if you go over your credit limit or default on a different account with the same bank, according to ValuePenguin.
Ask for a Lower Interest Rate
In our article on easy credit hacks that actually work, we suggest trying the simple tactic of calling your credit card issuer’s customer service department and asking for a lower APR. Surveys have shown that a majority of consumers who do this are successful in obtaining a lower interest rate.
Important Dates to Know
Many consumers assume that the payment due date of your credit card is the only important date you need to worry about. While it’s true that the due date is the most important date to be aware of, there are several other dates that are useful to pay attention to as well.
Billing cycle
The billing cycle of a credit card is the length of time that passes between one billing statement and the next. All of the purchases you make within one billing cycle are grouped together in the following billing statement.
This cycle is typically around 30 days long, or approximately monthly, although credit card companies can choose to use a different billing cycle system.
Statement closing date
Your credit card’s statement closing date is not the same thing as your due date, so make sure you know both.
Sometimes referred to simply as the “closing date,” this is the final day of your billing cycle. Once a billing cycle closes and the statement for that cycle is generated, the balance of your account at that time is then reported to the credit bureaus.
You can look at your billing statement to find the closing date for your account. Because of the 21-day grace period, the statement closing date is usually around 21 days before your due date.
Due Date
This is the most important date to know in order to pay your bill on time every month, which is the most influential factor when it comes to building a good credit history. To make it easy for yourself to avoid accidental missed payments, you may want to set up automatic bill payments.
If your due date is inconvenient due to the timing of your income and other bills, you can try requesting a different due date with your credit card issuer.
Promotional offer dates
Many credit cards offer introductory promotions to attract new customers, such as 0% APR, bonus rewards, or no balance transfer fees. To use these offers strategically, you will need to know when the promotional period ends so you can plan accordingly.
Expiration date
All credit cards have an expiration date past which they cannot be used.
Every credit card has an expiration date printed on it, after which you will no longer be able to use that card, although your account will still be open. You just have to get a new credit card sent to you to replace the one that is expiring.
Usually, credit card companies will automatically send you a new card before the original card expires. If this does not happen, simply call the issuer to ask for a replacement credit card.
A Common Credit Card Mistake
Some consumers think that the closing date and the due date are the same thing and therefore believe that if they pay off the full statement balance by the due date, the credit card will report as having a 0% utilization ratio. They may then be confused to find out that their credit card is still reporting a balance to the credit bureaus every month.
However, the statement closing date is usually not the same date as your due date. This is why your credit cards may report a balance every month even if you always pay your bill in full—the account balance is being recorded on your statement date before you have paid off the card.
If you do not want your credit card to report a balance to the credit bureaus, you will need to either pay off the balance early, prior to the statement closing date, or pay your statement balance on the due date as usual and then not make any more purchases with your card until the next closing date.
Credit Card Payments
With credit cards, you have several different options for payment amounts.
Minimum payment
If you only pay the minimum payments on your credit cards, it will take longer to pay off your credit card debt and you will be charged interest.
This is the minimum amount that you are required to pay by your due date in order to be considered current on the account and avoid late fees. Although this may vary between different credit card issuers, typically the minimum payment is calculated as a percentage of your balance.
If you make only the minimum payment every month, it will take you a much longer time to pay off your balance and you will be paying a far greater amount in interest than if you were to pay off your statement balance in full. Check your billing statement to see how the math works out; the credit card company is required to disclose how long it will take to pay off the balance if you only make the minimum payments.
Statement balance
This is the sum of all of your charges from the preceding billing cycle in addition to whatever balance may have already been on the card before that cycle. This is the amount you need to pay if you do not want to pay interest for carrying a balance.
Current balance
This number is the total balance currently on your credit card, including charges made during the billing cycle that you are currently in, so it will be higher than your statement balance if you have made more purchases or transfers since your last closing date. You can pay this amount if you want to completely pay off your account so that it has no balance.
Other amount
You can also make a payment in the amount of your choosing, as long as it is greater than the minimum payment. This is a good option to use if you don’t have enough cash to pay the statement balance in full, but want to pay more than the minimum in order to mitigate the amount of interest you will be charged.
Credit Card Fees
Credit cards often charge various other fees in addition to interest. Here are some common fees to be aware of.
Although you may have access to a “cash advance” credit limit on your credit cards, it is generally not recommended to get a cash advance due to the high interest rates and fees you will have to pay.
Late payment fees
If you do not make the required minimum payment before the due date, the credit card company will likely charge you a late fee somewhere in the range of $25 – $40 (in addition to potentially raising your APR to a penalty rate). If you usually pay on time but accidentally miss a payment for whatever reason, try calling your credit card issuer and asking if they would be willing to reverse the fee since you have been an upstanding customer overall.
Annual fees
Some credit cards charge an annual fee for keeping your account open. Many times this charge may be waived for your first year as a promotional offer to attract new customers. Cards with higher annual fees will often have additional perks and rewards, but there are also plenty of great options for rewards cards that do not charge annual fees.
Cash advance fees
Your credit cards may give you the option to borrow cash in the form of a cash advance. However, this is usually not advised because cash advance interest rates are often significantly higher than your regular interest rate for purchases. In addition, you will most likely be charged a cash advance fee when you first withdraw the money, whether a flat dollar amount of around $10 or a percentage of the amount you take out, such as 5%.
Foreign transaction fees
Some cards charge a fee to use your card to pay for things in other countries. These fees are typically around 3% of the purchase amount. However, there are many credit cards on the market that do not charge foreign transaction fees.
Be sure to check the terms of service of your credit cards for fees such as these so that you can avoid any unexpected charges.
How Credit Cards Affect Your Credit
Credit cards are one of the most impactful influences on your overall credit standing, and they play a role in multiple credit scoring factors.
Building Credit With Credit Cards
One of the major advantages of credit cards is that it allows you to start building a history of on-time payments, which is extremely important given that payment history is the biggest component of your FICO score, making up 35% of it.
All you have to do to get this benefit is use your credit card every so often and pay your bill on time every month.
Click on the infographic to see the full-sized version!
Revolving accounts such as credit cards can have a much greater influence on your credit than auto loans, student loans, and even a mortgage—for better or for worse. They must be managed properly because negative credit card accounts will also have a very strong impact on your credit.
Mix of Credit
Although your mix of credit only makes up 10% of your FICO score, it is still worth considering, especially if you aim to achieve a high credit score or even a perfect 850 credit score.
A good credit mix generally includes various types of accounts, including both revolving and installment accounts. You can see the different types of accounts in our credit mix infographic.
Credit cards may help with your credit mix if you have a thin file or if you primarily have installment loans on your credit report.
They also add to the number of accounts you have, which is a good thing for the average consumer. In fact, as we talked about in How to Get an 850 Credit Score, FICO has stated that those who have high FICO scores have an average of seven credit card accounts in their credit files, whether open or closed.
The Importance of Credit Utilization Ratios
Your credit utilization is the second most important piece of your credit score, which is another reason why credit cards are such a strong influence on your credit.
The basic rule of thumb with credit utilization ratios is to try to keep them as low as possible (both overall and individual utilization ratios), meaning you only use a small portion of your available credit. Ideally, it’s best to aim to stay under 20% or even 10% utilization, because the higher your utilization rate is, the more it will hurt your credit instead of help.
Conclusions on Credit Card Basics
Credit cards can be intimidating, especially when you don’t know how to use them correctly.
It is also true that not everyone wants or needs to use credit cards.
It’s not impossible to build credit without a credit card, but it is more difficult since you would be limited to primarily installment loans, which are not weighed as heavily as revolving accounts, and possibly alternative credit data.
However, for those who are able to use credit cards responsibly and follow good credit practices, they can be an incredibly useful credit-building tool as well as a way to reap some benefits and perks that other payment methods do not provide.
We hope this introductory guide to credit cards provides the knowledge base you need in order to feel confident using credit cards and to take advantage of their benefits.
If you found this article useful, please comment to let us know or share it with others who want to learn more about credit cards!
It’s never a good feeling when you notice that your credit score has dropped. You might feel confused or concerned, and you would probably wonder why your credit score took a dip. Let’s explore some of the possible reasons that could cause your credit score to decline.
Your average of accounts decreased because of a new account.
As we’ve written about many times in the articles in our Knowledge Center, the age of a tradeline is extremely important, as is your overall credit age. This is because credit age is linked to payment history, which is vitally important to your credit health.
Payment history makes up 35% of your credit score and credit age contributes 15% to your score. When you add the two together, you get 50%, which means that half of your credit score is controlled by these two connected factors.
Within the credit age category, your average age of accounts is thought to be one of the most important variables. The more age your tradelines have, the more they can benefit your credit. Therefore, anytime you decrease your average age of accounts, you run the risk of your score decreasing as a result.
So if you recently opened a new primary tradeline or if you were added as an authorized user to an account that lacks age, the decrease in your average age of accounts might be what’s behind your credit score troubles.
Your account balances increased.
Did you use credit to make a large purchase recently? Have you been accumulating more debt by not paying the full balance you charged each month? If either of these scenarios is true for you, that could explain why your credit score took a dive.
As your account balances increase, so does your credit utilization rate. This is bad news for your credit score since credit utilization contributes about 30% of your score.
If you’ve been using your credit card more often without paying it off entirely each month, that could be the source of the change in your credit score.
Low utilization is favorable since it indicates that you are not overextending yourself financially. On the other hand, high utilization shows that you are using a lot of your available credit, which means you are statistically more likely to default on a debt in the future. For this reason, high credit utilization is penalized by credit scoring models.
Fortunately, there are many strategies you can use to overcome the problem of high revolving credit utilization, such as pre-paying your credit card bill before your statement closing date, making more frequent payments throughout the month, increasing your credit limit, or getting a balance transfer card.
When you open a new account, it can hurt your credit score for a few reasons. The first and most important reason is that the account has no age, which means it is going to negatively affect your average age of accounts.
In addition, there was likely a hard inquiry on your credit report as a result of applying for the new loan. In “Are Inquiries Really Killing Your Credit? What You Need to Know,” each recent hard inquiry on your report may affect your credit score by up to five points.
The new account may also have a negative impact on the “new credit” portion of your credit score. Having new credit makes you look like a riskier borrower, which means it could slightly reduce your score.
However, new credit only makes up about 10% of your credit score, so the impact of opening one new account would likely be relatively small and it would diminish over time.
You applied for credit but your application was denied.
Applying for a loan or credit card, whether your application is approved or denied, the resulting hard inquiry could damage your credit score slightly.
As we just mentioned, when you apply for credit, the lender usually has to do a hard pull (AKA a hard inquiry) on your credit report to see if you qualify.
This doesn’t always result in a new credit account being opened. Sometimes, for example, your credit application might get rejected by the lender, or perhaps you may choose to decline the terms you were offered and not proceed with opening the account. (Note, however, that when you apply for a credit card, typically the account is automatically opened when you get approved for the card.)
Unfortunately, even if you didn’t actually end up opening a new account, the fact that you applied for credit can still hurt your score. The hard inquiry still goes on your credit report whether you opened an account with that lender or not.
If you only applied for one account, then your credit score will likely only fall by a few points, if at all. If you applied for several accounts that you didn’t open within the past year, however, it’s possible that you could see a bigger dip in your score as a result of all of those inquiries on your report.
You missed a payment once or twice.
You might think that missing a payment here and there is not that big of a deal, but in reality, it can wreak havoc on your credit score. Recall that payment history is the most important factor contributing to your credit score, weighing in at 35% of your FICO score.
If you are 30 days late on making a payment even one time, this can have a significant detrimental effect on your credit, dropping your score by as much as 60 to 110 points.
If you still fail to make your payment by the following due date, then you get a 60-day late on your credit report, which hurts your credit even more.
30-day and 60-day lates are both considered minor derogatory items on your credit report, so they won’t mess up your credit as much as a major derogatory item.
However, if you get a 60-day late payment added to your credit report, do your best to catch up on payments before another 30 days pass, which is when things get even worse.
You missed a payment for three months in a row or more.
Missing a payment even once can seriously set back your credit score, but the damage will be even worse the longer you put off bringing the account current.
Once you reach 90 days past due on a credit account, that is now considered a major derogatory item, which is the worst possible type of item to have on your credit report. (Other major derogatory items include charge-offs, collections, foreclosures, settlements, judgments, repossessions, public records, and bankruptcies.)
Having a 90-day late on your credit report is certainly going to have a negative impact on your credit. A credit score drop from a major derogatory item will be even more severe and more difficult to recover from than that of a minor derogatory item. In addition, the major derogatory item could scare away potential lenders, making it harder to obtain credit in the future.
If you default on a debt, meaning you did not fulfill your obligations to repay that debt, your creditor can sell your account to a collection agency, who will then try to collect the debt from you. A collection account is also a major derogatory item on your credit report, which means it can seriously hurt your score if you have an account go into collections.
You applied for multiple credit cards in a short period of time.
Applying for multiple credit cards results in hard inquiries on your credit report, which can have a more significant impact on your score than just one inquiry.
Having too many hard inquiries on your credit report in a short period of time indicates that you are seeking a lot of new credit, which is a bad sign to lenders, and it will bring down your score.
With most credit scoring models, inquiries for credit cards are all counted separately, even if they were all around the same time. Since inquiries can each cost your credit score up to five points, that can add up quickly. (The exception to this is the VantageScore credit score, which counts all inquiries made within a 14-day window of each other as one inquiry, regardless of the type of account.)
Furthermore, if you got approved for and opened all of the accounts that you applied for, then you could also end up with too many new credit accounts on your credit report.
One of your credit cards was closed.
Many consumers mistakenly believe the credit myth that it will help their credit if they close some of their accounts. In a way, that makes sense, because it lowers the amount of available credit you have, which reduces the potential amount of debt you could get into if you were to use all of your available credit.
However, that is not how credit scores work, because unfortunately, credit scores don’t always make sense.
The truth is that closing an account almost always hurts your credit instead of helping it.
With revolving accounts, such as credit cards, closing an account reduces your total credit limit by removing the credit limit of that card. When you reduce your credit limit, that action increases your overall credit utilization ratio, meaning that you are now using a larger fraction of your available credit.
This hurts your credit score because having a high credit utilization ratio is penalized by the credit scoring algorithms, whereas maintaining a low utilization ratio is rewarded.
The worst-case scenario for your credit when closing an account is if the account is closed while it still has a balance on it. In this case, that individual account will look like it is maxed out or over the limit because it has a balance but no credit limit. That alone is enough to significantly harm your credit, and the increase to your overall utilization ratio only worsens the problem.
Depending on what else is in your credit file, closing a credit card could also negatively affect your credit mix, which could result in a small credit score drop.
On the plus side, the reason why an account was closed does not play a role in your score, so you won’t be affected more negatively if the card was closed by the issuer than if it was closed at your request.
Have you checked your credit card statements lately?
An unexpected decrease in your credit score could be the result of fraudulent activity on your accounts.
If you see any charges on your statement that you do not recognize, then it could be fraudulent activity that is bringing down your score. Perhaps someone was able to obtain your credit card information by phishing or through a data breach and used it to run up the balance on the card.
It’s important to monitor your credit accounts regularly so that you can catch any suspicious activity early on. Better yet, set up email or mobile notifications on your account that will alert you to fraudulent activity instantly.
If a criminal does manage to get access to your account, report the fraudulent charges to your credit card issuer immediately and ask to have the charges reversed. Most credit card companies have a zero liability policy, which means you won’t be held responsible for paying for any of the fraudulent charges.
You paid less than the minimum payment.
If your cash flow is tight, it can be tempting to send the bank or credit card company a partial payment instead of the full amount that is due that month. You may think that it’s not as big of a deal as not paying at all, because at least you are sending them some of the money.
Unfortunately, it doesn’t work that way. If you do not cover the full minimum payment by the due date, it will not be counted as an on-time payment.
If you can bring the account current before 30 days pass, you may still have to deal with a late fee from your credit card issuer (although it’s worth asking them to waive the fee), but at least the late payment will not show up on your credit report.
On the other hand, if you do not make a sufficient payment and 30 days go by, then you will have a late payment pop up on your credit report, which can definitely take a toll on your credit score.
To prevent this from happening, as soon as you know you will not be able to make the full payment, contact your credit card issuer and ask if they have a financial hardship program or try to negotiate an arrangement with them that allows you to pay what you can without damaging your credit.
You didn’t use your credit card for a long time.
Your credit card issuer might have closed your account if it had been inactive for a long time.
If you don’t use a credit card for a long period of time, it’s possible that your credit card issuer may decide to close your account due to the lack of activity.
As we discussed above, a closed credit card is bad news for your credit since the loss of available credit hurts your credit utilization and it may also damage your mix of credit.
According to The Balance, the credit card company is not required to give you advance notice if they plan to close your account, so it’s best to take proactive measures to prevent this from happening.
To avoid having your card closed due to inactivity, make sure you use it to make a purchase at least once every few months. An easy way to do this is to use the credit card to pay for a subscription service that renews each month. Then, set up automatic bill payments on your credit card and the whole process will be automated.
You finished paying off an installment loan.
Making the final payment on your auto loan, student loans, or mortgage is an exciting accomplishment. Yet, when you finish paying off an installment loan, your credit score may decrease instead of increase.
Even though you now have less debt, which sounds like it would help your credit score, this may not outweigh the negative impact to your mix of credit. The paid-off installment loan will now report as a closed account, which can be harmful to your credit if all you have left is a few revolving accounts.
@LizOfficer shared a real-life example of this on Twitter.
This Twitter user commented that paying off her loan made her credit score go down since it affected her mix of credit.
An account that you are piggybacking on became delinquent.
Sometimes being an authorized user on a credit card or having a joint account can be a risky thing. You are relying on the other person to pay their bills on time and to manage their balances well, otherwise their behavior can compromise your credit.
In other words, an ideal tradeline should have a low utilization ratio, it should have a higher age than your average age of accounts and your oldest account, and most importantly, it needs to have a perfect payment history.
Therefore, you want to avoid being added as an authorized user to a tradeline that has any derogatory marks on it so that those derogatory items don’t get added to your credit file and end up damaging your credit.
That’s the danger of piggybacking on a friend or family member’s credit card—even if the tradeline is perfect when you are first added to it, there’s no guarantee that it will stay that way.
If your authorized user tradeline does get any missed payments on its record, that could definitely hurt your credit, and it would be smart to remove yourself from it immediately. To do so, simply call the credit card issuer and request to be removed from the account, as most banks allow you to do this without needing to go through the primary account holder.
Delinquency on the part of the primary account holder can cause problems if you are piggybacking on someone else’s credit account.
You declared bankruptcy.
Bankruptcy is one of the worst things you can have on your credit report. Since declaring bankruptcy essentially means you are asking to be released from the legal obligation to repay your debts, it shows lenders that you have an extremely high risk of defaulting in the future, so it can have a severe negative impact on your credit score.
There are inquiries on your credit file that you did not authorize.
Unauthorized inquiries on your credit file can unfairly drag down your credit. In our article on credit inquiries, we reported that each hard inquiry on your credit report can potentially cost you up to five points each.
Fortunately, you have the right to dispute any hard inquiries on your credit report that you did not authorize. You can learn more about the credit dispute process in “How to Fix the Most Common Credit Report Errors.”
Your credit file got merged with someone else’s.
Sometimes inaccurate information can get on your credit report not as a result of fraud or because your lender reported it incorrectly, but because your credit file accidentally became mixed with the information of another person.
This is called a “mixed credit file” or “mixed credit report” and it usually occurs with two consumers who have similar names.
If the credit history of the other consumer with whom your file has been mixed contains negative information, that would obviously be detrimental to your score, and you would need to correct the situation by filing a dispute with the credit bureau.
This is an example of why it’s important to check your credit report regularly. If there is incorrect information on your credit report that should be removed, you don’t want to find out about it when you’re trying to apply for credit. You need to catch and correct credit report mistakes early so that they don’t stand in the way of you achieving your financial goals.
You maxed out one or more of your credit cards.
Credit utilization makes up nearly a third of your FICO score, which means it’s critically important to keep your utilization low if you want to maintain a high credit score. Maxing out even just one credit card can have a significant negative impact, and if you max out multiple cards, you’ll be even worse off.
An account on your credit report that you don’t recognize could be an account that someone else fraudulently opened in your name.
We already covered how opening a new account can negatively affect your credit initially, but don’t forget that the same thing can happen if someone else uses your name to sign up for a new account.
If you see that your credit score has decreased, take a look at the inquiries and accounts on your credit report to see if there are any items that should not be there.
You have “double jeopardy” with collection accounts on your credit report.
Debt collection agencies are not known to be the most trustworthy entities and often do not have the best practices when it comes to keeping track of debts and contacting consumers. Information often gets lost or misrecorded when it is transferred between creditors and sometimes numerous collection agencies.
Because of this, some consumers find themselves with more than one entry for the same open collection account on their credit report, which is known as “double jeopardy.”
While the same collection may be listed multiple times due to the account changing hands, only the entity who currently owns the debt should be reporting the account as open.
Fortunately, if a collection is being reported in error, you can dispute the inaccurate information and have the information be corrected or potentially removed altogether.
Your credit report says you missed a payment even though you paid on time.
Dispute any mistakenly reported late payments so that they don’t unfairly affect your credit score.
Since payment history is the most important factor in your credit score, an incorrectly reported missed payment could severely damage your credit, especially if you are starting with very good credit. The higher your score to begin with, the more you stand to lose from a credit mistake.
This type of situation is another example that demonstrates why it’s so crucial to regularly check your credit report. If you always made all of your payments on time, you might assume that you must have a spotless credit record, only to find out at an inconvenient time that a creditor has been incorrectly reporting that you missed a payment.
Keep an eye out for errors like this on your credit report so that you can dispute them right away.
Your credit card issuer reduced your credit limit.
Sometimes, credit card issuers lower the credit limits of their cardholders, even for those who have consistently managed their accounts responsibly.
Unfortunately, they are usually allowed to do this without asking for your permission or letting you know in advance, so it may come as a nasty surprise when you swipe your credit card and get declined, or when your credit score takes a dive because your credit utilization is suddenly much higher.
There are a few reasons why your bank may reduce your credit limit, such as the following:
Credit card issuers sometimes cut credit card limits, which hurts your credit utilization ratio.
Your balances have been increasing, which indicates that you are taking on more debt and might be at a greater risk of defaulting. You missed a payment and your account becomes delinquent. Your account was inactive because you did not use your credit card enough. The economy is down and lenders want to minimize their risk exposure levels.
Regardless of why your credit limit took a hit, the result is the same: with less available credit, your credit utilization increases, which is bad for your score.
If your credit card issuer slashed your credit limit, check out “How to Increase Your Credit Limit” for some useful tips, and don’t be afraid to give your bank a call to ask them to reconsider.
A collection account was deleted from your credit report.
Surprisingly, it is actually possible that getting a collection account removed from your credit report could make your credit score go down instead of up.
By removing a collection account from your credit report, it is possible that you could move from one bucket into another bucket where your score will now be calculated differently. As a result of this new algorithm being applied to your credit report, your score could turn out to be lower than it was when you were in the first bucket.
You haven’t used any credit in a long time.
If you have used credit in the past but not recently, some of your old accounts may have fallen off of your credit report altogether. Accounts that are closed or inactive do not stay on your credit report forever. Positive accounts will generally stay on your credit report for 10 years, whereas negative accounts may stay on your credit report for up to 7 years.
When these old accounts age off of your credit report, you lose all of the credit history associated with them, the most important of which is the payment history. Because you are losing valuable credit history, your score could take a hit.
Those with thin credit files or those who have not used credit in several years will need to focus on building credit in order for their credit score to recover.
Conclusions
When it comes to your credit score, minor fluctuations are normal, so there’s generally no need to fret about losing a few points here and there.
If you are practicing good credit habits and paying all of your bills on time, it’s probably not necessary to watch your credit like a hawk and check your score every single week, and a change of a few points in either direction should not cause you to panic.
However, as we have seen, you don’t want to neglect your credit entirely, since mistakes can and do happen.
In addition, keep in mind that credit moves can sometimes have unexpected results, particularly in cases where you may be migrating from one credit scoring “bucket” to another.
If you see a significant drop in your credit score, that is definitely worth investigating further so that you can understand why it happened, address the issue, and hopefully get some of those credit score points back.
26 million consumers in America have no credit record whatsoever. On top of that, there are an additional 19 million consumers who do have credit files, but they do not contain sufficient credit information to be scored by a widely available credit scoring model. These consumers—in total making up nearly one in five American adults—are the “credit invisibles” and “credit unscorables.”
Due to a lack of credit history, these consumers are virtually invisible to the credit system. That means credit can be very hard or even impossible to obtain when it is needed. After all, we all know that “it takes credit to get credit,” since lenders often don’t want to take the chance of lending to someone with no prior credit record.
“Alternative data,” which involves using data sources other than traditional credit reporting information to make lending decisions, is a concept that is becoming increasingly popular as one possible solution to the problem of credit invisibility.
Let’s shed some light on the emerging topic of alternative credit data and how it could help or hurt consumers.
What Is Alternative Credit Data and How Does It Differ From Traditional Credit Data?
Traditional credit data refers to your credit report, credit scores, and the information they contain. In other words, traditional credit data primarily consists of information about how you manage your tradelines, which are the credit accounts you own.
When we are talking about credit, we are almost always discussing traditional credit data since that is what is used to make most lending decisions.
In contrast, alternative credit data is financial information about consumers that is not typically included in traditional credit reports. Examples of alternative credit data sources include rent payments, utility payments, full-file public records, and data from alternative financial service providers (ASFPs), such as payday lenders.
Traditional Credit Data Alternative Credit Data
Contains information about the tradelines in your credit report Information comes from other sources since there is insufficient credit data
Payment history for loans and credit cards Data from alternative financial service providers (e.g. payday lenders)
Credit utilization ratio Utility payment history
Delinquencies Rent payment history
Credit mix Consumer-permissioned data
Credit inquiries Full-file public records information
What Is the Purpose of Alternative Credit Data?
Alternative data includes data that consumers may choose to allow credit reporting companies to access, such as bank account balances.
For the millions of consumers who lack credit reports based on traditional credit data, building credit and obtaining credit is a challenge. Without a verified credit history, lenders cannot make an informed decision about whether to extend credit to a consumer.
One way the credit scoring industry is trying to address this problem is by creating new types of credit scoring algorithms that utilize different sources of data that are not contained within a consumer’s traditional credit report but still have predictive power with regard to a consumer’s credit risk.
These alternative data sources, such as rent and utility bill payments, are more accessible and more commonly used among those who are credit invisible.
The idea behind alternative credit data is that a consumer’s non-credit financial information can still be used to predict whether the consumer is financially responsible and creditworthy. This information can help lenders provide credit to consumers who may have a thin credit file or no credit file at all but who may still be creditworthy.
Therefore, using alternative data to make lending decisions could theoretically allow lenders to expand their customer base and earn more revenue while providing more credit to consumers who lack a traditional credit history.
How Do Consumers Benefit From Alternative Data?
The benefit to consumers, of course, is that many consumers who may be creditworthy but are invisible to the traditional credit system could potentially use alternative data as a path to building credit where they lacked one before.
For example, a consumer who gets a good credit score using an alternative data scoring method might now be able to get approved for an unsecured credit card, whereas they might have had to put down a deposit to get a secured credit card if the lender had only been able to use traditional credit data. This would allow the consumer to hold onto the cash they would have had to put down as collateral and instead save it for emergencies or some other use.
Applications of Alternative Credit Data
Consumers who are “credit invisible” but have a history of being financially responsible in other areas may benefit from the use of alternative credit data.
Although alternative credit data is still a relatively new field, major players in the credit industry are already working on developing new credit scoring tools that make use of alternative data.
FICO XD and FICO XD 2
FICO is working on developing new credit scoring models that can reliably assess the credit risk of consumers who are unscorable using traditional credit scoring methods.
The FICO Score XD “leverages alternative data sources to give [bankcard] issuers a second opportunity to assess otherwise unscorable consumers.”
Nerdwallet reports that the FICO XD model uses phone, utility, and cable payment data as well as things like information about your home if you are a homeowner, occupational licenses you may have, and your bank records.
Compared to traditional FICO scores, this model has the same credit score range of 300 to 850 and the same expected credit risk for each score group within that scale.
According to FICO, the XD scoring model can provide a score for more than half of all credit applicants that had previously been unscoreable, which adds millions of consumers to the scorable population.
Although only about a third of applicants that can be scored with FICO XD receive scores higher than 620, which is considered to be fair credit, the company claims that almost half of borrowers with higher FICO XD scores later go on to obtain credit and achieve traditional FICO scores of 700 or greater.
FICO XD’s newer version, FICO Score XD 2, works similarly but has been further refined to provide more accurate results.
Similarly, the FICO Score X incorporates alternative data sources for credit scoring, such as telecom payments, mobile payments, “digital footprint” data, and even data from psychological surveys to provide a way for international lenders to score previously unscorable consumers.
UltraFICO
The UltraFICO score, currently being pilot tested by Experian, will use “consumer-permissioned” banking data to enhance its scoring capabilities. In this case, what that means is that consumers can choose to contribute data about their checking, savings, and money market accounts in order to allow lenders to assess their creditworthiness by looking at their overall financial profile.
Some of the specific financial factors considered by the UltraFICO score include:
A history of positive bank account balances is a beneficial factor with the UltraFICO credit score.
How long you have had your bank accounts open How often you make banking transactions When your most recent bank account transactions occurred Verification that you often have money saved in your bank accounts A history of having positive bank account balances
FICO says this credit scoring model can help increase access to credit for “nontraditional borrowers” who have limited credit histories, particularly young consumers, immigrants, and those who are rebuilding their credit after experiencing financial distress.
The company also states that UltraFICO could potentially improve credit access for most Americans and could be especially helpful for those whose credit scores are in the “grey area” of the upper 500s and lower 600s or those whose scores just barely miss a lender’s credit score cutoff.
Seven out of 10 consumers who have had consistently positive banking habits in the past three months could get a higher UltraFICO score than their traditional FICO score, according to the company’s website.
Experian Boost Credit Score
Experian has also come up with their own alternative data solution called Experian Boost, which is a free service that allows users to provide access to their bank accounts in order to get credit for their on-time payments of bills such as electricity, water, gas, phone plans, cable, and even Netflix.
One major advantage with Experian Boost is that it only counts positive payment history, so missed payments will not hurt your score. If the program detects that you have missed a payment, it will remove that account from your credit file so that the late payment will not hurt your score.
Experian Boost lets you add positive payment history from your utility bills and some streaming services.
The New York Times has reported that the reason why Experian Boost does not consider negative information about your bills is that anything negative on your record will most likely end up on your credit report anyway, either because your utility provider may start reporting it to the credit bureaus or the account may get sold to a collection agency which then reports the collection account.
In addition, Experian says that you can disconnect your bank accounts if your FICO score decreases because of Experian Boost and that you can always reconnect your account later once your finances have improved.
According to Experian, consumers who sign up for Experian Boost receive an average boost to their FICO score of 13 points. Those who do not see a boost initially may see a larger effect over time if they keep their account connected as the program continues to check your account for payments you made on time and adding those to your credit profile.
If Experian Boost helps your credit but you later decide for whatever reason that you no longer want to use it, be aware that the positive payment history that was helping you will be removed from your credit profile, so it’s likely that your credit score will fall.
TransUnion FactorTrust
In 2017, TransUnion acquired FactorTrust, a company that provides lending data on short-term and small-dollar loans (e.g. payday loans), which are not reported in traditional credit reports and are often utilized by underbanked and credit invisible consumers.
This information will allow TransUnion to assess credit risk for a larger group of consumers.
In addition, TransUnion says that their small-dollar loan data will help lenders comply with the Consumer Financial Protection Bureau’s recent changes to payday lending rules meant to protect consumers.
Equifax DataX
In 2018, Equifax acquired a specialty credit reporting agency and provider of alternative credit data called DataX. Equifax stated that they plan to use DataX to help lenders improve financial inclusion and access to credit, especially for consumers who are underbanked.
DataX claims that they can help lenders better evaluate the credit risk levels of prospective customers by utilizing a “massive, proprietary consumer database that provides valuable insights on consumers not covered by traditional credit information sources.” This database contains demographic, financial, and credit data on millions of consumers.
The Downsides of Alternative Credit Data
In theory, alternative data sounds like a promising solution to the credit catch-22 and the problem of credit invisibility. According to FICO’s white paper on the subject, the use of alternative data allows millions of previously unscorable consumers to achieve credit scores that are high enough to get access to credit.
However, while the credit scoring and credit reporting companies only talk up the positives of their alternative data products, there are some drawbacks to this approach that also need to be considered.
Alternative Data May Perpetuate Credit Inequality
Although alternative data is marketed as a solution to credit invisibility, it’s possible that it could actually worsen credit inequality.
Despite FICO’s impressive claims, in the company’s white paper, we can clearly see how alternative data in credit scoring might not be so helpful to many consumers.
According to their research, about a third of the “newly scorable” consumers scored 620 or above using the alternative data score. These are the millions of consumers they refer to that may now be able to access credit.
But if only a third of consumers scored 620 or above, that means two-thirds of consumers now fall below 620 with the alternative data score, which is considered bad credit. That means there are twice as many of the newly scored consumers who end up with bad credit than those who end up with good credit after the alternative data model has been applied.
In many cases, having bad credit is even worse than having no credit, because instead of starting from scratch, you have derogatory information on your credit report that is going to weigh down your credit score. This can make it even more difficult to get your credit to a good place than if you had started with no credit history at all.
The results of FICO’s alternative data research bear out the concerns presented by the National Consumer Law Center (NCLC). According to the NCLC, if utility payments become part of the credit reporting system, this could result in millions of consumers getting negative marks and would disproportionately impact low-income consumers and people of color.
Although alternative credit data is pitched as a way to lift millions of consumers out of credit invisibility, in reality, it is another profit-generating tool created by the credit scoring and reporting companies to sell to financial institutions. Any benefit or harm to consumers is incidental to the primary goal of the banks making more money by lending to more consumers.
As you know from our article, “What Happened to Equal Credit Opportunity for All?” the credit scoring system was built upon and continues to perpetuate a history of financial inequality in our country.
Unfortunately, although it has the potential to help millions of consumers if implemented in the right way, it seems likely that alternative credit data may just end up being used to continue the legacy of inequality and discrimination that is still firmly entrenched in the credit industry and in our society in general.
Data Privacy Concerns
Another major concern with alternative data is privacy. In recent years, major data breaches have been happening left and right, including the 2017 Equifax breach that compromised the information of around 148 million consumers. The credit bureaus have shown with multiple egregious security breaches that consumers cannot trust them to safeguard their personal information.
Experian Boost, as well as other similar “consumer-permissioned” data reporting systems, require users to allow access to their bank account in order to report bill payments. For many, it may be hard to stomach the idea of giving FICO or the credit bureaus access to their personal information when they have repeatedly mishandled sensitive consumer data. Those who do choose to use such services do so at the risk of their information potentially being compromised.
Some Lenders May Not Use Alternative Data Credit Scores
Since alternative credit data is still a relatively new development, one downside is that many lenders may not be using alternative data or credit scores based on it in order to make their lending decisions.
The credit industry is slow to change, as we talked about in “Do Tradelines Still Work in 2020?”, so it may take several years for alternative credit data to be widely adopted.
Therefore, at this time, there is no guarantee that your lender of choice will have the ability to access and use your alternative credit data.
Conclusion: Is Alternative Data Helpful or Harmful?
Alternative data has the potential to lift millions of consumers out of credit invisibility, which is a step toward providing equal credit opportunity to these consumers.
However, it has just as much potential to harm consumers and perpetuate credit inequality due to the issues we discussed above.
As with any credit reporting or credit scoring tool, we have to remember who these tools are designed for and who they are intended to serve: the banks.
Ultimately, the purpose of alternative credit data is to help lenders make more money by lending to a greater number of consumers. For consumers, the benefits and risks are not so clear cut.
If you have no credit record or a thin credit file, alternative credit data scoring systems may be worth considering and trying out. As with any major credit moves, be sure to do your due diligence as a consumer by researching how these programs work and how you can protect yourself and your credit if you do not get the results you are looking for.
What is your take on the issue of alternative credit data? Have you tried any of these alternative data services yourself? Drop a comment below to let us know your thoughts!
Your credit score is a seemingly simple three-digit number, but it can have a major impact on your finances. Without a high score, you may not be able to pursue some of your major financial goals. Or even if you can, those goals can actually turn into major challenges if you’re stuck with high interest rates because you had a low score. If you are preparing to improve your credit, you need to know the general ranges for scores so that you can set a specific goal for yourself. There are various tiers of credit scores, and being in a higher tier will generally bring the reward of better terms.
First, What’s the Average?
We’re going to talk about credit score categories in a moment, such as “poor,” “fair,” and “good.” But first let’s take a look at the average credit score. One initial point of clarification—while there are two major credit scoring models—FICO and VantageScore—we will focus primarily on the FICO score in this article, though we will make brief mention of the VantageScore as well. There are actually multiple FICO scoring models, and lenders use a variety of them, but the information here specifically relates to FICO® Score 8.
FICO most recently reported that the average credit score is 706. Credit scores nationwide can fluctuate significantly depending on the state of the economy. Back in 2009, the average was 686. COVID-19 and other economic factors may have a negative impact on the national average, but only time will tell. The average can be a useful baseline for comparing your own score. But, don’t let the average discourage you if your score is lower, because there are many ways to increase your score.
Source: FICO.com
The Breakdown
Using the FICO 8 scoring model, the credit bureaus agree (see Experian’s post here and Equifax’s here) to the following breakdown for score ranges. Again, remember that your lender may use a different model which could result in a slightly different breakdown. But, this should give you a good general idea of what to aim for.
Poor
A poor credit score is a score between 300 and 579.
Fair
A fair credit score is a score between 580 and 669.
Good
A good credit score is a score between 670 and 739.
Very Good
A very good credit score is a score between 740 and 799.
Excellent
An excellent credit score is a score between 800 and 850.
If you are curious about the breakdown for VantageScore 3.0, it looks like this:
Interestingly, the VantageScore ranges are narrower on the low end of the spectrum (including both a “very poor” and “poor” range, and broader on the high end (including only a “good” and “excellent,” without a “very good” range).
Why the Ranges Matter
Now that you know the ranges, here are three important reasons that they matter.
Access to Credit and Other Services
If your score is too low you may not have access to credit or, at the very least, you will likely have obstacles to credit. A score in the “very poor” range may mean that any applications for credit are denied. Your best bet may be a secured credit card, which requires you to make a deposit. While this is not ideal, a secured card can be an important tool in rebuilding your credit.
Also, remember that getting credit is not the only concern. Access to other products and services often depends, in part, on your credit history. Being in the “very poor” range can limit your ability to rent an apartment, enter certain contracts, or even get a job.
Favorable Credit Terms
Even if you can get credit, you will want the credit terms to be as favorable as possible. Bad credit terms, like high interest rates, will make your debt more expensive. They will also limit your purchasing power, which can prevent you from buying the home or car you want. Every time your score improves from one category to the next (say from “fair” to “good”), that should be paired with lenders offering you more favorable terms.
Here is a look at estimated mortgage rates by credit score and a look at auto loan rates by credit score. Note: these tools use different ranges and terminology for scores (for instance, the auto loan chart has ranges from “deep subprime” to “super prime”), but the general point still applies.
Goal Setting
Knowing the general credit score ranges can help you plan your goals for the future. Make a plan to check your credit score frequently, but especially as you make major changes (paying off a debt, opening a new card or loan, or changing your credit limit). You will also need to check your credit report often, as that report is the basis for your score. Keeping a close eye on these will help ensure that you move your credit in the right direction.
Want a free credit report review? An NFCC-certified counselor can review your credit report with you, and help you make a game plan for improving your financial standing. Learn more about the free credit report review, or get started here.
A lot of time, effort, and energy go into starting a business. Typically, you have to map out a business plan, prepare a variety of business and legal documents, and maybe even hire other people. This can take a lot of planning and careful consideration. In addition to these steps, you also want to set up your business for financial success. An important question you may be asking yourself at the outset of this new venture is “Do I need good credit to start a business?” The technical answer is “no.” You can start a business without good credit. The long answer is that good credit will enable you to do more with your business, potentially allowing you to scale and grow your business more quickly and with less risk.
No Credit Requirement at the Outset
The act of starting your business may not involve credit at all. This will depend upon your business plan and the type of service or goods you will be provided, along with the expenses you will encounter and the capital you have available when you start. But just as an example, a simple service-based business (like, say, a solo web designer) could be formed and function without credit.
Truly “starting” a business boils down to choosing your name, selecting your entity type, filling out the basic forms, and applying for any licenses required by your selections. The Small Business Administration has tips for each of these tasks. If you create a business that is a new separate entity (like an LLC, for example) you will definitely want to open a business bank account so that you can keep the business’ funds separate from your personal funds. Sole proprietors and partnerships can do this too, but it may not be as legally urgent as for other business types. The bank account can be a simple business checking account without any accompanying credit lines. If so, approval should be fairly easy and not require a strong credit history.
These steps alone may be sufficient for small, simple businesses to get up and running. If your business is more complex and needs more capital than currently available at the time you start the business, then credit may be necessary from the start.
Business Credit Can Help You Grow or It Can Hold You Back
Launch and scale: Credit can be essential for some businesses, and the core business idea may never come to fruition without credit. Even if a business does get off the ground without credit, it may not be able to adapt and take advantage of critical opportunities. Say a rare business opportunity becomes available—a new partnership, or the chance to get into a new market, for example. These moves often require more capital. Being able to quickly access more funding through a credit line could be a game-changer. Unfortunately, the SBA reports that in one survey, 27 percent of respondents said that they did have the funding to adequately support and grow their business. You do not want to be in that position when a rare opportunity presents itself.
Extra benefits: We have been talking about business credit in a general sense but one unique benefit of credit cards is the fact that many offer rewards. If your business has significant expenses, and you can put most of them on credit cards, you have the potential to rack up a lot of credit card rewards. Of course, you will want to pay the balances in full and avoid interest costs. But if you can do that, then the rewards can effectively become increased profits for your business. The rewards might even provide new equipment for your business to help it grow while not costing you anything out-of-pocket.
Increased separation from personal credit: We touched on this before when discussing bank accounts, but you will want to build a separation between your personal financial identity and your business financial identity. In some cases, this is legally essential for bank accounts to ensure that you do not “commingle” funds. But a similar principle applies to credit. Early on in the life of a business, creditors may use your personal credit history in determining whether to give credit to your business, and they may require a personal guarantee on financial commitments. This means that you and the business will be liable for the debt. In fact, on most “small business credit cards,” this is always a requirement.
However, other credit products may not require a personal guarantee, therefore giving you access to pure business credit. One factor in getting approved for such products will be the credit history of the business (including the business’own credit score), so it is important to build a good financial and credit history in the business from day one. Note: building a business credit score typically requires an Employer Identification Number (EIN). Having an EIN is not required for all business types, but can be applied for. Therefore, if you have a type of business not required to have an EIN but want to build your business credit, it may make sense to apply for an EIN.
The dangers: The dangers of business credit are not much different than the dangers of personal credit, but the stakes may be higher. If you have access to credit personally and access to credit through your business, that could lead to a substantial total credit limit. If you were to take a significant business risk or manage your credit improperly, there is the potential to face an astronomical level of debt without the income necessary to pay it off. And depending on your business, your credit decisions may not just impact you but could affect your employees too.
Recap
You do not need good credit to start a business. In fact, there is no requirement that a business use credit at all. However, for some business models, credit will be essential. Early on, creditors will use your personal credit history in determining the terms of any credit they offer the business. But over time, you can put separation between your personal credit and your business credit, which has several advantages. At the end of the day, the same general principles of smart credit management in personal finance apply to business finance. Should you need any assistance with your business or personal credit, the NFCC is here to help.
It’s a question we hear all the time from people who are new to the tradeline industry. Perhaps you have even asked it yourself. In this article, we explain how tradelines work and how they can affect your credit.
What Are Tradelines to Your Credit?
While the term “tradeline” simply means any credit account, in our business, it usually refers specifically to authorized user (AU) tradelines, or authorized user positions on someone’s credit card. An AU tradeline is an account on which you are designated as an authorized user, which means you are not liable for the charges incurred on the account. However, the tradeline can still affect your credit file.
How Do Tradelines Work?
When someone is added as an authorized user to someone else’s account, often the full history of the account is then reflected in the records of both the primary account holder and the AU. This is because credit records do not report the date the AU was added to the account. So, as soon as the AU is added, their credit report may begin to show years of history associated with the account.
Therefore, authorized user tradelines can be used as a way to add credit history to someone’s credit report.
One common example of this is when a parent designates their child as an authorized user of one of their credit cards as a way to help them start building credit early in life. In fact, this practice of building credit as an authorized user, often called “credit piggybacking,” is frequently promoted by banks and financial education sites.
What Are Tradelines Used For?
Parents often use piggybacking as a strategy to help their children build credit early in life.
As we mentioned, tradelines can add years of credit history to your credit report. The power of a tradeline is always relative to what is already in your credit file, so if you are interested in building credit as an authorized user, make sure to choose a tradeline that surpasses what you already have in your credit profile.
How Do Tradelines Affect Your Credit?
Adding quality tradelines to your credit file can influence many of the variables that are related to your credit, such as your average age of accounts, age of oldest account, overall utilization ratio, number of accounts, mix of accounts, and more.
The most important factor that tradelines bring to the table is age, because with age also comes perfect payment history. These two factors combined are the most significant influence on one’s credit.
Due to the power of these factors, adding AU tradelines to your credit file is often preferable over opening new primary tradelines. This is because new primary tradelines will have no age and will probably have relatively low credit limits, which can drag down important metrics in your credit file.
Authorized user tradelines, which are authorized user positions on someone’s credit card, can be used to build credit history.
In contrast, authorized user tradelines already have significant age and high credit limits.
Can You Buy Tradelines?
The tradeline industry took this concept of “piggybacking credit,” as it is often called, and created a marketplace where tradelines could be bought and sold. Essentially, people who want to add tradelines to their credit file can pay a fee to be an authorized user on someone else’s credit card, even if the two parties are complete strangers.
Tradeline companies serve as the intermediary, protecting the privacy of both the cardholders and the authorized users and facilitating the transaction.
A marketplace now exists where consumers can pay a fee to piggyback on others’ tradelines as authorized users.
Tradelines have been around since the advent of the modern credit system. Virtually as long as credit cards have existed, people wanted to be able to share access to their account with others, such as spouses, children, or employees.
However, the role of authorized users was not always considered equally by the credit bureaus. Until the Equal Opportunity Credit Act of 1974, creditors often used to report accounts that were shared by married couples as being only in the husband’s name. This prevented women from building up a credit history in their own names.
In response to this unequal treatment, ECOA was passed to prohibit discrimination in lending.
Regulation B is a section of ECOA that requires creditors to report spousal AU accounts to the credit bureaus and consider them when evaluating credit history. Since lenders generally do not distinguish between AUs who are spouses and those who are not, this effectively requires that credit bureaus must treat all AU accounts the same.
The Equal Credit Opportunity Act prohibits credit discrimination.
It was as a result of this policy that the practice of “piggybacking credit” emerged as a common and acceptable way for consumers with good credit to help their spouses, children, and loved ones build credit.
Thanks to ECOA, authorized user tradelines are still weighted very heavily in credit scoring models.
For more on the history of AU tradelines and the policies and regulations that govern our industry, read our article, “Do Tradelines Still Work in 2019?”
Are Tradelines Legal or Illegal?
While Tradeline Supply Company, LLC does not provide legal advice, we can answer this common question by referring to official proceedings and statements from the authorities.
The issue of tradelines and credit piggybacking went all the way up to the U.S. Congress in 2008, when FICO tried—unsuccessfully—to eliminate authorized user benefits from its credit scoring model. They ultimately reversed their stance and decided to keep factoring AU benefits into credit scores thanks to the Equal Credit Opportunity Act of 1974.
The Federal Trade Commission and the Federal Reserve Board have also weighed in on this topic. In 2010, the Federal Reserve Board conducted a large-scale study on piggybacking and found that over one-third of the credit files that could be scored had at least one AU account in their credit profile, which shows that piggybacking credit is an extremely common practice.
After the issue of piggybacking credit was discussed in Congress, FICO admitted that it could not legally eliminate authorized user benefits.
Learn more about your legal right to use authorized user tradelines in our article, “Are Tradelines Legal?”
How Do I Add Tradelines to My Credit Report?
To add tradelines to your credit report, you can either open your own primary accounts or you can be added as an authorized user to someone else’s credit account. For many people, it is difficult to start building credit on their own because creditors are hesitant to lend to someone with no credit history, which is why the authorized user route is an appealing option.
If you are seeking to add authorized user tradelines to your credit report, you can either ask someone you trust to add you to one or more of their accounts or purchase tradelines from a tradeline company. The benefit of buying tradelines as opposed to asking for a favor from someone you know is that all of our tradelines are guaranteed to have perfect payment histories and low utilization.
How Much Does It Cost to Buy Tradelines?
Our tradelines range in price from $150 to around $1,500 depending on two main variables:
The tradeline’s age The tradeline’s credit limit
Our tradelines stay on your credit report for about two months.
Generally, the older the tradeline is and the higher the credit limit is, the more powerful it will be and the higher the price will be (and vice versa). We delve into further details and examples of the cost of tradelines on our FAQ page, “How Much Do Tradelines Cost?”
How Long Does a Tradeline Stay on Your Credit Report?
Our tradelines stay on your credit report for two reporting cycles, which is approximately two months.
After the two months of being an active authorized user is complete, you will be removed from the account and the tradeline will then appear as closed. A closed tradeline will often remain on your credit report for several years.
However, your strategy may vary depending on your specific goals. There are some situations in which the credit limit can be more important. Our in-depth tradeline buyer’s guide that has all the information you need to help you choose a tradeline.
In choosing the right tradelines for you, It is helpful to be able to calculate how a tradeline could affect your average age of accounts and utilization ratios. Try out our custom tradeline calculator, which does the math for you!
How many tradelines you need depends on your specific situation. There are different cases in which buyers may want to get two or three tradelines, or sometimes even more, but there are other cases in which one tradeline will suffice.
If you really want to maximize your results and you have the budget to do so, buying multiple high-quality tradelines is the way to go. However, if you have budget constraints to deal with, it is usually best to focus your resources on one excellent tradeline.
Historically, only those with privilege and wealth have been able to use the strategy of credit piggybacking. Those who do not have family members with good credit to ask for help, or could not afford the high cost of tradelines, had nowhere to turn, so their options for building credit are often extremely limited and very costly.
To us, it does not seem fair that some people have the option of credit piggybacking but others do not. By offering tradelines at affordable prices, we aim to bridge this gap and help provide a chance at equal credit opportunity for all.
With the recent killings of yet more Black people at the hands of police, the long-held rage and grief of America’s Black communities have boiled over into nationwide civil unrest and protests demanding justice, equality, and the end of police brutality.
As our nation collectively reckons with its history of slavery and its legacy of violence toward Black people that continues today, we want to shed some light on the economic inequalities faced by Black Americans.
We do not pretend to have all the answers or solutions to these large, structural issues that are deeply embedded within the fabric of American society. However, we feel that it is our responsibility to provide educational resources on these topics so that each citizen can understand the issues we are facing and make informed decisions about how to combat inequality in our own lives and in our society as a whole.
The Racial Wealth Gap
Get ready for this staggering statistic: according to data from the Federal Reserve, the typical Black household has only about 10 cents for every dollar of wealth held by the typical White household.
According to the U.S. Joint Economic Committee, Black Americans are more than twice as likely to live below the poverty line as White Americans, with Black children, in particular, being three times as likely to live in poverty as White children.
Not only that, but the chasm between Black and White household wealth, instead of getting smaller, is actually getting wider and wider over time, even for Black Americans with higher education.
This chart from the Center for American Progress shows the racial wealth gap widening over time.
Origins of the Racial Wealth Disparity
The racial wealth gap in America has existed from the moment that the first Africans were taken from their land and brought to the colonies in 1619.
For over two and a half centuries, enslaved Black people were used as a source of wealth by White enslavers who claimed them as property, but they had no way of accumulating wealth for themselves. They were forced to work for nothing and were not allowed to keep any of the wealth they generated.
Even after slavery was legally abolished in 1865, that certainly did not create a level economic playing field.
For at least another century, various laws and policies continued to block Black people from attaining wealth, and discrimination is still pervasive today.
Government-Sanctioned Housing Discrimination
Take the National Housing Act of 1934, for example. Passed in the wake of the banking crisis that kicked off the Great Depression, this act created the Federal Housing Administration (FHA). The FHA made it easier for White Americans to afford homes by providing mortgage insurance to protect mortgage lenders from borrower defaults.
Unfortunately, the FHA outright refused to insure loans to Black consumers and even consumers who wanted to live in areas near Black neighborhoods. This practice of “redlining” not only restricted where Black families could buy homes, but it also affected the types of funding they could get and the terms of those loans. (Without FHA insurance, Black home buyers were forced to accept inflated prices and fees as well as predatory contracts pushed by deceitful contact sellers.)
Furthermore, it discouraged investment and development in primarily Black areas, which led to the decline of many communities and of property values in those areas.
While many White families were buying up houses using government-sponsored, low-interest mortgage loans, Black families did not have this luxury, which meant they were shut out of an important opportunity to accumulate wealth in the form of home equity.
Ultimately, the racial wealth gap cannot be explained or fixed by the behaviors or decisions of individual Black people. It is the result of 400 years of structural racism and oppression in America, and solving it likely requires dramatic and large-scale policy changes.
The Federal Housing Administration insured mortgages to help make it more affordable for consumers to obtain mortgages and purchase homes—but only for White Americans.
Employment
The rate of unemployment of Black people is twice as high as the unemployment rate of White people.
Racism and prejudice undoubtedly play a significant role in this, as research has shown that Black people today still face the same amount of hiring discrimination that they did in the 1980s.
The Center for American Progress wrote the following in 2011, when the economy was starting to slowly recover from the Great Recession; however, the information unfortunately still holds true today in 2020, especially in the midst of the COVID-19 recession:
“The unemployment rates for African Americans by gender, education, and age are much higher today than those of whites, and these unemployment rates for African Americans rose much faster than those for comparable groups of whites during and after the Great Recession. The unemployment rates for many black groups in fact continued to rise during the economic recovery while they started to drop for whites…It is now painfully clear that African Americans are still facing depression-like unemployment levels.”
“…there are unique structural obstacles that prevent African Americans from fully benefiting from economic and labor market growth—obstacles that deserve particular attention when unemployment rates for African Americans stand at the highest levels since 1984.”
In addition, Black workers are more likely than White workers to have low-wage jobs, which leads to Black families having lower average incomes than those of White families. White annual household incomes are about $29,000 higher than Black annual household incomes.
People of Color Are Bearing the Brunt of the Recession
It is impossible to ignore the effects of the economic recession that has begun as a result of the COVID-19 pandemic, which is disproportionately impacting Black and Hispanic communities, just like the Great Recession did in 2007 – 2009.
Job Loss
Pew Research Center reports that Hispanic and Black adults are being the most affected by the loss of millions of jobs due to the coronavirus.
This is primarily because people of color are overrepresented in many low-wage jobs within the industries that have had to shut down during the pandemic, such as food service, retail, and hospitality. These are also jobs that cannot be done remotely. Consequently, Black employees are especially vulnerable to being laid off.
Furthermore, not only are Black workers often the first to be let go during recessions, but they are often the last to be re-hired when the economy recovers. According to the Center for American Progress, it’s important to recognize “…that black labor market prospects are hit much harder by recessions and that it takes longer for African Americans to recover from an economic downturn.”
Business Closures
A study from the Stanford Institute for Economic Policy Research on the impact of COVID-19 on small business owners revealed that the percentage of Black-owned small businesses that have been forced to close due to the pandemic (41%) is more than twice the percentage of White-owned businesses that have closed for the same reason (17%).
The Paycheck Protection Program, which is part of the CARES Act, was intended to “provide small businesses with funds to pay up to 8 weeks of payroll costs including benefits.” However, some have pointed out that the program is likely to be perpetuating racial inequality by giving the role of distributing funds to banks that have a demonstrated history of discrimination against Black borrowers.
Housing Insecurity
Evictions have been temporarily paused in many areas since many renters have lost their jobs during the pandemic and can not afford to pay rent. Once these eviction bans are lifted, however, it is predicted that Black and immigrant tenants will make up the majority of those displaced by the coming housing crisis.
According to Politico, “Black and Latino people are twice as likely to rent as white people, so they would be most endangered if the protection from removal is ended.” Furthermore, Black and Latino households usually spend a greater portion of their income on rent than White renters. Any disruption in income could spell disaster for these vulnerable groups of tenants.
Poor women of color, specifically, are much more vulnerable to eviction than any other demographic group, with one in 17 being evicted each year, compared to only one in 150 for poor White women.
The consequences of having an eviction on your record are severe. It can be nearly impossible to find safe and affordable housing since many landlords refuse to rent to tenants who have previously been evicted. This leads to many low-income Black women being forced into homelessness and dangerous living conditions.
If the landlord passes the bill for unpaid rent onto a debt collector, then it becomes a collection account, which shows up on your credit report and can heavily impact your credit for up to seven years. Similarly, if a landlord seeks a court judgment against you for unpaid rent, the judgment could appear in the public records section fn your credit report.
Credit Difficulties
With less wealth and lower average incomes than White households, Black and Hispanic households are less equipped to weather financial emergencies without getting behind on bills, which is the number one cause of bad credit.
A recent Pew Research study determined nearly half of Black adults surveyed reported that they are worried about not being able to pay all of their bills over the next few months.
For a list of tips and resources on getting through the COVID-19 pandemic with your finances and your credit intact, even if you are having a hard time paying your bills, read “How to Protect Your Finances and Credit During the Pandemic.”
Medical Debt
It is well known that many Black communities deal with higher pollution levels and “food deserts” where access to affordable, healthy foods is often not possible.
And since Black Americans are more than twice as likely to be in poverty than White Americans, they are therefore more likely to experience food insecurity, inadequate nutrition, a lack of healthcare, and the stress of constantly worrying about money on a daily basis.
All of the stressors listed above have been shown to have lifelong consequences on the physical and mental health of poor people, including strong negative effects on the immune system. This means low-income individuals (especially low-income people of color, who also suffer from the effects of “weathering”) are less able to fight off infections and more likely to live with various chronic illnesses that can make the coronavirus more deadly.
As we mentioned, Black workers are overrepresented in lower-wage jobs and more likely to get laid off, which puts them at risk of losing their health insurance coverage or, often, not even having access to health insurance in the first place.
When you put all of these factors together, it creates the perfect storm for Black individuals to get sick with COVID-19, suffer more severe complications that could lead to being hospitalized, and not have the resources to cover extremely expensive hospital stays.
Even if the illness is less severe for some, who may be able to recover after staying at home for a few weeks, they still have to deal with the high cost of missing work while sick and isolated at home. Losing out on even one paycheck can be devastating for low-income households who have not had the option of building up savings.
Naturally, when you combine serious illness with no health insurance and no safety net, the result is massive medical debt. Research has shown that Black Americans are 2.6 times more likely to have medical debt than White Americans and are also nearly twice as likely as White people to be contacted by debt collectors and to borrow money due to medical debt.
When consumers cannot afford to service their medical debt, or if they have to stop paying other bills in order to be able to make their medical debt payments, they will inevitably end up missing payments, defaulting on debts, having accounts go into collection, and possibly even filing for bankruptcy in extreme cases.
All of these derogatory items are severely damaging to one’s credit and therefore tend to make credit more expensive and less accessible to consumers who struggle with medical debt. This impact is long-lasting since negative information stays on your credit report for seven years or even up to 10 years in some bankruptcy cases.
For those who cannot afford adequate healthcare, getting sick depletes scarce resources, limits future opportunities, and stunts financial growth for many years, thus continuing the downward financial spiral.
Racial Disparities in the Credit System
Since race and ethnicity are not legally allowed to play a role in credit scores, you might think that consumers of all races would have equal opportunity in the credit system. Unfortunately, however, this is not the case.
Black and Hispanic consumers, on average, tend to have lower credit scores than non-Hispanic White and Asian consumers, even after controlling for other variables such as personal demographic characteristics, location, and income. Black borrowers pay higher interest rates on auto loans and other installment loans than non-Hispanic White borrowers who have the same credit score. Black and Hispanic consumers experience higher denial rates than other groups with the same credit score.
Black and Hispanic Americans are more likely to be credit invisible (lacking a credit record) than White and Asian Americans—15% of Black and Hispanic consumers lack a credit record, compared to just 9% of White and Asian consumers. Black and Hispanic consumers are also more likely than White consumers to have credit records that cannot be scored by widely used credit scoring models—13% of Black adults and 12% of Hispanic adults are unscorable, versus only 7% of White adults. (The Consumer Financial Protection Bureau (CFPB) did not provide the percentage of Asian consumers who cannot be scored but said that “the rates for Asians are almost identical” to those of White consumers.)
Since credit invisibility and unscorability are more common among Black consumers, it should not be surprising to learn that Black households are more than twice as likely as White households to use payday lending. Payday loans are an expensive and usually predatory type of credit, in contrast to traditional sources of credit, such as banks, credit unions, and credit card issuers.
Credit Options Are Limited by Circumstances
In our credit system, there are some people who have the privilege of starting out with good credit and stable finances simply due to the circumstances they were born into, while many others are not so fortunate.
As we talked about in our article about equal credit opportunity, there are five main factors, referred to as the “five C’s,” that influence a borrower’s performance when it comes to paying back debt:
Capacity: the amount of income that is available to pay off debts Collateral: the value of assets backing a loan, such as your car or your house Capital: the value of assets that do not explicitly back a loan, but may potentially be used to repay it Conditions: events that can disrupt a borrower’s income or create unexpected expenses that affect a borrower’s ability to make loan payments, such as a job loss Character: the financial knowledge, experience, and/or willingness of a borrower that is relevant to their ability to manage financial obligations
As much as some people may like to believe that getting good credit is simply a matter of determination and hard work, in reality, each of the five C’s is subject to external forces and influences that may be beyond the control of the borrower.
When it comes to your capacity to pay off debts, for example, your income may be limited by the availability of jobs where you live and the types of jobs you can qualify for. Hiring discrimination and other challenges prevent many Black individuals from earning to their full potential, which results in a reduced capacity to pay off debt compared to White folks.
In order to have collateral and capital, you need to have valuable assets, which is a privilege that not everyone enjoys.
A borrower’s “character” depends on their upbringing and education, which for many people does not include adequate financial education.
And while anyone could be faced with unexpected conditions that may lead to financial hardship, people who are financially and socially privileged are in a much stronger position to recover, while others who are less fortunate could face financial ruin from even a single emergency.
Lacking Access to Credit Has Consequences
The reality in our country is that centuries of systemic inequality continue to have an impact on all of these five C’s in countless ways, which contribute to higher rates of credit invisibility and poor credit in Black communities.
As the CFPB states, “…the problems that accompany having a limited credit history are disproportionally borne by Blacks, Hispanics, and lower-income consumers.”
For example, data show that 42% of consumers in communities of color have debt in collections, compared to only 26% of consumers in White communities. Delinquency rates or default rates for medical debt, student loan debt, auto loans, and credit card debt are higher for communities of color across the board.
This makes a lot of sense when you think about the fact that Black and Hispanic borrowers have lower incomes and less wealth that they can use to service their debts compared to White borrowers.
The consequences of these disparities are far-reaching. Here are just a few of the repercussions of having no credit or bad credit:
It is more difficult to obtain credit, from credit cards to installment loans. Credit is more expensive—it comes with higher interest rates and fees and may require a larger down payment or security deposit upfront. Insurance rates may be more costly for those with bad credit. It may affect your employment opportunities since surveys have shown that around 20%-25% of employers conduct credit checks as part of the hiring process for some positions.
Who Has the Privilege of Receiving Financial Support From Others?
Perhaps another “C” could be added to the list: community.
Often, the difference between good credit and bad credit or no credit at all often comes down to having a strong financial support network.
If you think about the five C’s of credit performance (capacity, collateral, capital, conditions, and character) we described above, each factor can be influenced or controlled by the financial resources available to you within your social circle.
According to the Urban Institute, “Financial support received can be saved or invested in an education or a home and it can be used to cover unexpected costs, helping families remain stable through financial emergencies.”
Having been deprived of generational wealth for centuries, Black households have fewer financial resources to draw on when a friend or family member is in need, and they receive less financial support from those in their networks compared to the amount of support that White families receive.
The Federal Reserve reports that while 71% of White Americans say they would be able to get $3000 from friends or family if they needed to, only 43% of Black Americans could say they would be able to do the same.
Another example of uneven access to financial support by race has to do with large monetary gifts and inheritances. The same report by the Urban Institute quoted above states that Black and Hispanic families are five times less likely to receive large financial gifts or inheritances than White families. For those who do benefit from large gifts and inheritances, Black families receive an average of $5,013 less than White families. It is estimated that this disparity explains 12% of the racial wealth gap.
From these examples, we see how a person’s family connections can enhance their access to capital and collateral, which can then make it easier to obtain and successfully pay off credit obligations. Conversely, not having access to those resources and possibly even having to support your own friends and family makes it much more difficult to manage debt.
An article in Forbes about the racial wealth gap summed it up well: “Those who have neither emergency savings nor flush friends and family to tap are more likely to take high-rate loans from payday lenders, skip needed medical care, fall behind on rent, mortgage or other bills or even have trouble paying for food.”
Piggybacking for Credit: Only for “Friends and Family”?
Being part of a privileged community does not only make it easier to access capital. It also means that you may be able to acquire a positive credit history before you have even used credit or opened your own primary accounts, thanks to the help of friends or family.
Achieving good credit early on in life is often the result of having friends and family members who also have good credit and who can share their positive credit history with someone who is just starting out. This process is called credit piggybacking because you can “piggyback” on someone else’s good credit in order to build up your own credit profile.
Ways to piggyback for credit include opening an account with a cosigner or guarantor, opening a joint account with someone who has good credit, or becoming an authorized user on someone else’s tradeline. Becoming an AU on a seasoned account is usually the preferred method for building credit fast because you can add years to your credit history simply by being added to the account, whereas the other methods involve opening a new primary account and waiting for it to age.
Unfortunately, when it comes to credit piggybacking, we see the same patterns of inequality along racial lines.
Many Consumers Are Already Benefiting From Credit Piggybacking
A study on AU accounts conducted by the Federal Reserve Board revealed that over a third of scoreable consumers in the United States have at least one AU tradeline in their credit profiles.
However, when the prevalence of AU tradelines is broken down by race, twice as many White consumers have AU accounts as Black consumers: only 20% of Black consumers have AU accounts, compared to 40% of White consumers.
In addition, the statistics showed that Black individuals have fewer AU accounts, on average, than White individuals, and when Black consumers do have AU tradelines in their credit profiles, the tradelines have less age and higher utilization rates of the tradelines held by White consumers.
What About “Equal Credit Opportunity”?
Despite the fact that one in three scorable consumers in our nation are already taking advantage of authorized user tradelines, there are still some who oppose the tradeline industry because they feel that those who purchase tradelines are “cheating the system.”
Yet these same people and institutions usually have no qualms about recommending that parents help their children build credit by allowing their children to be authorized users on their credit cards, or that a spouse who has good credit designates their partner as an authorized user for the purpose of building credit.
Most, if not all, of the big banks promote this strategy, often even explicitly saying that the authorized user does not need to be given the card to use, which makes it clear that it is solely for the purpose of getting that tradeline to appear on the authorized user’s credit profile.
As you can see, just like in many other aspects of our society, there is a double standard when it comes to who is “allowed” to benefit from AU tradelines.
While the banks publicly encourage their customers and their customers’ “friends and family” to use this credit-building tactic, they also claim that this opportunity should not be available to others who turn to the tradeline industry because they simply do not have the option of going to family or friends for credit help.
It does not seem fair or equal to promote a powerful credit-building strategy for those who are already privileged enough to have support from their social network while at the same time saying that it is wrong or should not be allowed for those who have fewer opportunities to get ahead.
How Can We Create Equal Opportunity for All?
Unfortunately, the racial economic divide in this country runs deep, as it has been perpetuated by American systems for generations.
For this reason, Black consumers disproportionally struggle with low incomes, less wealth, poor credit or no credit, and fewer opportunities to get ahead in life financially. This makes it more difficult to simply pay the bills and stay afloat, let alone to save money, invest in assets, and build wealth.
So what can we do to start to bridge the divide?
To address the disparity fully, it’s clear that large-scale economic policy changes on a national level will be needed.
The actions of individual consumers and businesses, while they cannot solve the problem as a whole, can help people take steps to improve their finances and credit.
Education on the Credit System and Personal Finance
Sadly, basic financial education is not something that most people are exposed to, neither in school nor at home.
Research is mixed on the topic of whether enhanced financial education in school would significantly help with the issue of economic inequality in our country. However, it can make a big difference to individuals to educate themselves on money management and the credit system and become empowered with this information to make better financial decisions.
We understand the importance of being educated about credit, knowing what the weaknesses in the credit system are, and understanding the steps you need to take to improve your credit. When you become familiar with how the credit system works, you have more power to make it work for you, instead of the other way around.
You can start taking control of your financial future with the knowledge and the power of these resources at your fingertips.
Tradelines and Equal Credit Opportunity
For those who lack a positive credit history, there are not many options to get started on building their credit profile, since most lenders base their decisions on your credit score and your track record of successfully managing credit in the past. Just like trying to get a job with no work experience, It can seem nearly impossible to get credit if you have not already had experience with credit before.
This is why we are so passionate about what we do at Tradeline Supply Company. We fill the void that so many consumers are looking for in their quest to start building or rebuilding their credit.
Our goal is to help create equal opportunity by making tradelines affordable and accessible to all consumers, not just the wealthy and the privileged.
Conclusion
While the wealthy have always had easy access to credit and strategies for building credit, the same cannot be said for the many people in America who are on the other, less fortunate side of the massive wealth gap.
At the same time, income inequality and the racial wealth gap keep growing larger, leaving more and more people behind who are struggling to build credit, manage their finances, and create a strong financial foundation for themselves and their families.
Systematic, government-legitimized discrimination against Black folks deprived Black communities of the opportunity to grow and thrive economically for hundreds of years. To this day, even though we claim to value equality, there are serious financial disparities in our systems that Black families bear the brunt of.
Although we alone cannot repair this injustice, we will continue to do our part in helping to provide equal opportunity to all consumers and create a more level playing field in our economy.
Using a credit card is easy — you use the card to buy things and then pay the credit card bill.
A credit card can sometimes be difficult, however, when dealing with your credit file. From a missed payment to a loan that isn’t yours that’s incorrectly listed on your credit report, there are all kinds of ways your credit score can drop. And not all of them are from something you did wrong.
Consumers have protections under the law regarding their credit reports — which is where credit scores and credit problems are listed for lenders to check before offering you credit. Errors on a credit report can drop your credit score, making it harder to get a loan, credit card, rent an apartment, or qualify for insurance coverage, among other things.
The main law that protects consumers from credit errors is the Fair Credit Reporting Act, or FCRA. Here are some of the rights you have under this law and how to use it to protect your credit:
View credit reports
The FCRA entitles you to review your credit file from each of the three main credit bureaus for free once every 12 months. You can do one check every four months from each of the three — Equifax, Experian and TransUnion — if you really want to be on top of it.
Start by going to AnnualCreditReport.com to request your credit file online. Only use that website and don’t use a copycat site that charges fees for what should be a free service. You’ll need to verify your identity to get online access. You can also request your credit file through an automated phone system or the mail.
The FCRA applies to all consumer reporting agencies. You can also look at reports from other consumer reporting agencies that collect noncredit information about you. These include rent payments, insurance claims, employers and utility companies. The Consumer Financial Protection Bureau lists the reporting companies and how to request a free report from each.
Check your credit score
The law allows you to request a credit score, though it’s legal for credit agencies and other businesses to charge you a fee for this service. Some credit cards provide scores for free, so check with your credit card issuer first.
A credit score isn’t the same as a credit report. Information in a credit report determines a credit score, and each credit bureau can use a different scoring model that requires it to provide different information. You have different credit scores, depending on which factors are weighed more heavily.
Monitoring your credit is vital. Make sure that you review your credit report for any inaccuracies.
Know who can view your credit report
The FCRA doesn’t allow a credit reporting agency to share your credit file with someone who doesn’t have a valid need. Some inquiries, such as from a potential employer or landlord, require your written consent. And, they can only check your credit report, not your credit score.
The credit reporting agencies can share your credit report for legitimate reasons, such as when you’re applying for credit, insurance, housing or with a current creditor.
Disputing errors
Getting a credit report in your hands can lead to all sorts of eye-opening concerns. Anything that’s listed as negative should be checked for accuracy. Here are some things to look out for:
Eviction that wasn’t legal. Creditor listed that you didn’t have an account with. Loan default. Wrong name. Wrong address. Wrong Social Security Number. Incorrect loan balance. Closed account reported as open. A loan you didn’t initiate.
Some errors may be simple to resolve and others you may need to do more research on before disputing them to ensure they’re incorrect.
For example, you may not recognize the name of a creditor and assume you don’t have an account with them. But it may just be a store credit card you recently applied for that is listed by the issuing bank’s name. Or maybe a home or auto loan was sold to a new loan servicer.
Other errors could be reason to suspect identity theft, or there could just be wrong information that’s bringing down your credit score.
If you suspect identity theft, such as someone taking out a credit card in your name, then file a police report and report it to your credit card company and the credit reporting agencies.
To dispute erroneous information, use certified mail to send the credit bureau a letter and copies of documents explaining the error. If a loan still shows an outstanding balance and you have written proof that it was paid off, for example, send a copy to the credit agency.
Credit agencies have 30 days to investigate and respond to your dispute, unless they deem it frivolous.
If it corrects an error, it must send you a free copy of your credit report through AnnualCreditReport.com so you can see that the corrections have been made.
A time limit to negative information
The FCRA doesn’t allow credit bureaus to report negative information that’s more than seven years old, though it allows some forms of bankruptcy to remain on a credit report for 10 years.
There’s also a time limit for positive credit information such as on-time payments and low balances — up to 10 years after the last date of activity on the account.
Rejections based on credit report
If your application for credit, job, insurance or housing has been denied because of information in your credit report, the law gives you the right to know this information.
The landlord, employer or other entity that denied your application must notify you and give you the name, address and phone number of the credit reporting agency that provided the information.
The FCRA allows you to get a free copy of your credit report from that reporting agency within 60 days of the action against you. That’s in addition to the three free credit reports allowed annually.
To best deal with a potential rejection ahead of time, it’s smart to check your credit report before applying for credit, rental unit or related use of your credit report and check it for errors. Give yourself enough time to fix them.
Go to court
If these actions or a complaint with the CFPB doesn’t resolve your dispute, you may be able to sue for damages in state or federal court. You can sue a credit reporting agency or related parties for violating any of the above rights.
However, it’s worth knowing that your right to legal action doesn’t start until after the creditor or credit reporting agency has been notified of an error and has a chance to fix it. In other words, you’ll only be awarded damages if the adverse action happened after you reported the error.
So if you didn’t get approved for a mortgage because of a mistake on your credit report, it’s unlikely you’ll be compensated for losing out on the house if you lost out on it before reporting the mistake.
Equality, fairness, and justice are all concepts that the United States promotes as some of its highest values.
In reality, the history of our country and society has not always lived up to those values. In fact, our history has proven to be so far from those ideals that we do not even need to mention how far off our society has been in our not so distant past.
Fast forward to now, and many people may believe that our country has worked out all those unfair and unequal practices. But the truth is that in our capitalist society, powerful private institutions provide the backbone of our economy, and the facts paint an interesting picture of how our financial systems really operate.
Do Credit Scores Actually Work?
For decades, lenders have been relying on automated underwriting tools that are largely or entirely based on the contents of one’s credit report. Do these tools succeed at their goal of accurately determining the creditworthiness of consumers?
What Do Credit Scores Do?
A credit score is a number that is supposed to symbolize the credit risk of a consumer. The scale usually ranges from 300 to 850, with lower scores indicating that you have a high risk of defaulting on a loan and higher scores indicating that you have a low risk of defaulting. Generally, credit scores that fall below 579 are considered bad credit, while scores that exceed 670 are considered good credit, and 850 is a perfect credit score.
Each type of credit score, such as a FICO Score or a VantageScore, has a different mathematical formula that uses the data in your credit report to produce your score, which represents the statistical likelihood of you defaulting in the future. The specifics of the credit scoring algorithms are trade secrets, so information about how exactly they work is not available to the public.
Credit Scoring Models Are Flawed
It is estimated that one-fifth of consumers have at least one error on their credit report that has the potential to make them look riskier than they are, which could result in higher interest rates, less favorable loan terms, or being denied credit. In other words, millions of people are negatively affected by inaccurate information on their credit reports.
Furthermore, it is well-known that in our credit system, consumers are rewarded for having debt and penalized for paying in cash, because taking on debt is one of the primary ways of establishing a payment history. You would think that being burdened with more debt would make you a higher credit risk, yet credit scoring models are designed to reward this behavior.
For example, many consumers are unpleasantly surprised to find out that sometimes paying off a loan can actually hurt your credit score. This is counterintuitive because it would seem that your credit risk has decreased now that you no longer have to make payments that loan, and therefore it would make sense for your credit score to go up as a result.
However, that is not how credit scores work. Here’s what really happens in this scenario: the action of paying off the loan would close the account and remove it from your mix of credit, which could have a negative effect on your score.
Clark Abrahams, Chief Financial Architect of SAS Institute, said it well in his testimony before the House Financial Services Committee, asking, “Are we to tell consumers that being responsible in their financial affairs means that they need to modify their behavior so as to maximize their credit score?”
The goal of a credit score is to indicate who is creditworthy and who is not, which should depend on an individual’s ability and willingness to repay an obligation. Yet this quality is not always reflected in one’s credit score. Instead, credit scores are based exclusively on what is and is not in one’s credit file, which often doesn’t tell the whole story.
Is the Credit Scoring System Fair and Equitable?
Just a few years ago, it was revealed that two of the three major credit-reporting agencies that control credit scores—Equifax and Transunion—had been deceiving and taking advantage of consumers.
If you’re familiar with the credit system, it’s not exactly shocking that the credit bureaus have been abusing their power. This is just one example of the dysfunction that runs deep in the credit system and causes widespread harm to consumers.
The Equal Credit Opportunity Act of 1974 was enacted in an effort to prevent discrimination in lending. In the 1970’s, people started to pay attention to credit discrimination against consumers based on age, race, gender, and other factors. In 1972, the National Commission on Consumer Finance revealed that there was widespread discrimination against women in the credit industry. A congressional report identified 13 discriminatory practices used specifically against women.
These discoveries led to the Equal Credit Opportunity Act (ECOA), which prohibits lenders from discriminating against any applicant on the basis of age, gender, ethnicity, nationality, or marital status. Regulation B of ECOA prohibits creditors from requesting information about certain characteristics to prevent lenders from making decisions based on prejudicial assumptions.
Officially, credit discrimination is prohibited. But it is not clear whether ECOA has succeeded in its goal, and many questions remain as to whether there is still inequality in the credit industry.
Is ECOA enforced effectively, or does discrimination still happen? Does the credit scoring system affect population groups differently? Do the factors used in calculating credit scores affect certain individuals grouped by race, gender, age, or other protected characteristics?
Unfortunately, the language of ECOA makes it virtually impossible for those who believe they have been discriminated against to win a lawsuit against a creditor, and the governing federal agencies have not picked up the slack in enforcing ECOA. There is no shortage of data showing that there is disparate treatment of certain groups when it comes to credit scoring.
This is because the credit scoring system not only reflects but perpetuates the economic inequalities in this country.
Who Are Credit Invisibles?
According to the Consumer Financial Protection Bureau (CFPB), about one-fifth of adults in the United States are “credit invisible,” meaning they are unscoreable by traditional credit scoring methods and traditional credit data. The lack of a conventional credit record prevents these consumers from obtaining the financial products and services they need to be successful, since they are seen by lenders as too high of a credit risk.
A study by the Policy and Economic Research Council (PERC) on credit invisibility in Silicon Valley showed that unscoreability is a big problem in low-income areas. However, low-income does not necessarily equate to financially irresponsible.
We can see evidence of this in a study by PERC and the Brookings Institution Urban Markets Initiative, which shows that when alternative data (such as rent and utility payment history) are used in credit ratings, those lacking a traditional credit history have similar risk profiles as those in the credit mainstream. This suggests that most credit invisible consumers do not represent a high risk to lenders.
On the other hand, some of these consumers do have relatively good incomes, but are credit invisible for various reasons, such as increased use of alternative financial technology services instead of traditional financial institutions, a decision to be voluntarily credit-inactive and debt-free, or a cash-based lifestyle due to lack of access to banking services (as in some immigrant populations).
Credit Scores and Income
Low-income consumers are about 8 times more likely than high-income consumers to lack credit records that are scoreable by widely used models. In consumers that do have credit scores, individuals who reside in low-income census tracts have lower credit scores than other income groups, according to the CFPB.
They also found that people in lower-income neighborhoods are less than half as likely as those in upper-income neighborhoods to gain a credit record by relying on the good credit of others (such as through joint accounts or authorized user accounts), and are 240 percent more likely to become credit visible due to negative records.
Lower-income consumers are less likely to have one or more AU accounts, and those that do acquire shorter credit histories from the accounts than those in higher-income areas.
Even after controlling for credit scores, consumers in low-income areas face higher denial rates than other groups.
How Credit Scoring Adversely Affects Certain Races
In a report to Congress on credit scoring and its effects on the availability and affordability of credit, the Federal Reserve Board (FRB) raised concerns that factors in credit-scoring models could adversely affect minorities.
The study determined that on average, blacks and Hispanics have lower credit scores than non-Hispanic whites and Asians, and a gap remained even when controlling for differences in personal demographic characteristics, location, and income.
In addition, for given credit scores, outcomes such as loan performance, credit availability, and credit affordability differed between these groups.
For example, it seems that black individuals pay higher interest rates on auto and installment loans than do non-Hispanic whites with the same credit score. In addition, black and Hispanic consumers experience higher denial rates than other groups with the same score.
Credit Scoring Discriminates by Age
Younger individuals tend to have lower credit scores, which makes sense considering that one of the main factors in credit scoring is the length of credit history.
Unfortunately, this means that young people who may be creditworthy are disadvantaged just by virtue of not being old enough to have a very long credit history. Younger consumers also experience relatively high denial rates.
Other Groups Marginalized by Credit Rating
The unequal effects of credit scoring are not limited to the above groups. It can affect consumers in surprising ways. For example, recent immigrants have lower credit scores than their performance would predict.
Credit invisibility is more prevalent in areas with less digital access to traditional financial service providers, such as in rural areas.
And since no federal law protects LGBTQ people from discrimination, they can still be denied credit with no option for recourse.
Why the Credit System Is Inherently Discriminatory
In the FRB’s report to Congress, they listed the “five C’s,” which are factors that seem to influence the variations in credit performance with race, age, gender, national origin, etc. The five C’s are:
Capacity: income available to pay off debts Collateral: the value of assets backing a loan Capital: the value of assets that do not explicitly back a loan but may be available to repay it Conditions: events that can disrupt income generation or create unexpected expenses that affect a borrower’s ability to make loan payments Character: the financial skills, experience, and/or willingness of a borrower that pertain to their ability to manage financial obligations
The way credit scores are determined privileges those who already have wealth, high incomes, education, and a support system of people who can help them out in a financial crisis.
In contrast, historical discrimination against minorities in the United States continues to affect each of the five C’s in ways that have serious and persistent consequences on credit scores.
In relying on and reflecting past inequality, credit scores also perpetuate that inequality.
According to the National Consumer Law Center, communities of color have less income and far less wealth than white Americans, thanks to centuries of discrimination and exclusion. Redlining, segregation in education, implicit bias in employment, and mass incarceration have prevented communities of color from attaining higher incomes and accumulating wealth.
The racial wealth gap makes it exponentially more difficult to recover from emergencies or financial setbacks. These inequalities take a toll on each of the 5 C’s, which in turn contributes to the higher proportion of credit invisibility and poor credit in minority communities.
Since credit scores are used in decisions that affect housing, insurance, employment, loans and more, poor credit scores mean consumers of color are disproportionately denied credit, affordable housing, jobs and other basic necessities. Expensive loan terms deplete capital and make loans much more difficult to repay, which continues the cycle of bad credit.
The system further burdens those who are already financially strained and provides very few opportunities to improve their situation.
Can We Fix Credit Scoring?
The credit scoring industry clearly has a multitude of problems. It’s no surprise that an inherently discriminatory system meant to serve for-profit companies has not produced equitable results.
Some believe that private companies shouldn’t even be the parties responsible for calculating credit scores. These for-profit corporations harvest our information, use closely-guarded proprietary algorithms to calculate credit scores, and sell this information to other companies in the financial sector.
Their clients are lenders, not consumers, so they do not have an incentive to fairly and accurately represent consumers. Perhaps a system in which this task falls to public institutions would be more accountable to consumers.
Pending currently is the Credit Access and Inclusion Act of 2017, a bill that would amend the Fair Credit Reporting Act to allow the reporting of rent, utilities, and telecommunication payment information to consumer reporting agencies. Even FICO has joined the discourse about financial inclusion, developing credit scores that include alternative data sources to allow millions of previously unscorable consumers a path to credit.
However, most lenders still use FICO 8, which is over 10 years old, so it would likely take a long time before scores that draw on more diverse data are widely deployed.
In addition, some civil rights and consumer advocacy groups argue that the addition of alternative data would actually “reduce consumers’ control over their own data by preempting state and federal privacy protections [and] damage the credit scores of millions of consumers with a disproportionate impact on African Americans.”
Perhaps what we really need is a broader conversation about how we judge creditworthiness and how we can create new tools that account for discrimination to create a more equal and just playing field. We need to question the assumption that past behavior is a true reflection of someone’s creditworthiness.
While the industry may be (very) slowly changing for the better, unfortunately, the faulty credit scoring system we have now will continue to negatively impact the lives of millions of people for years to come. That’s why we are driven to help provide solutions and opportunities to disadvantaged consumers.
How Do Tradelines Fit Into Equal Credit Opportunity?
Having good credit often comes down to having a good start in life and knowing how to play the credit game. Some people are born with access to wealth and education while others are not. People who don’t have the resources to start building good credit early on often get stuck in the downward spiral of a broken system that leaves them little room to improve their financial situation.
When people make mistakes, as we all do sometimes, these mistakes have a much greater impact on those who lack good credit than on those who have been playing the credit game for years.
The gap between classes in society is getting larger, as opposed to our country’s ideal of promoting equality. In reality, the wealthy are the ones who receive the most help and opportunity.
Our society has become a credit-based society in which credit scores affect almost every aspect of our lives, yet there are clear “winners” and “losers” in our credit scoring system. Statistically, there are clear indications that these differences are not spread out equally across our country.
Good credit is something that many privileged Americans start out with in early adulthood because of the family they were born into. This is no secret among the wealthy.
On the other end of the spectrum, many lower-income families do not have family members with good credit that they can ask to help them build credit by adding them as an authorized user on a credit card. This option simply does not exist to many, while the banks encourage it for others.
To us, it does not seem fair that some people have this option but others do not. Tradeline Supply Company, LLC seeks to bridge this gap by helping to provide a chance at equal credit opportunity for all.
What do you think about the credit system and equal credit opportunity? If you liked this article, please share it or leave us a comment below!
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The FCRA entitles you to review your credit file from each of the three main credit bureaus for free once every 12 months. You can do one check every four months from each of the three — Equifax, Experian and TransUnion — if you really want to be on top of it.
