Collection Accounts on Your Credit Report: The Ultimate Guide

August 31, 2019CreditBy toptierfinancial

Collections are one of the worst things to have on your credit report. They can damage your credit score significantly for a long time—up to seven years. This helpful guide explains what collections are, how they affect your credit, how collection agencies try to re-age debt, how to get collections removed from your credit report, and more.

What Is a Collection Account?

A collection account is a debt account that has been sold by the original creditor to a third-party debt collection agency. This happens you (the borrower) are delinquent on payments long enough (generally 180 days) for the lender to charge off the loan, which means they consider the account to be a loss—but that doesn’t mean you’re off the hook.

Once the account has been charged off, the original creditor closes your account and often transfers or sells it to a debt collection agency or a debt buyer. (Debt buyers typically focus on purchasing debt accounts and they hire debt collection companies to attempt to collect the debt.)

When Does the 7 Year Credit Rule Start on Your Credit Report?

Regardless of who the debt was transferred to or when it was transferred, the Fair Credit Reporting Act (FCRA) allows collections to legally be reported by the credit bureaus for up to seven years after the date of the first delinquency (also known as “DOFD” for “date of first delinquency”).

The seven-year rule for collections begins on the date of first delinquency.

What does this mean exactly? How do you figure out the date of the original delinquency of an account?

According to Experian, the date of the original delinquency is the first reported late payment. As an example, if you have a 30-day late reported and never catch up on payments, then the delinquency would later get reported as a 60-day late and eventually as a 90-day late.

The seven-year period after which the delinquency falls off begins with the first missed payment, the 30-day late. If the debt is sold to a collection agency, the original account and the collection account will both be removed from your credit report seven years after the initial delinquency, says Experian.

Medical collections are slightly different in that a 180-day grace period must be provided to allow insurance benefits to be applied. Therefore, the seven-year timeline starts after 180 days, not after a 30-day late.

The date that a collection account is charged off or transferred to another company does not change the DOFD and therefore should not change the date that the delinquency falls off of your credit report.

How Often Do Collection Agencies Report to Credit Bureaus?

Collections agencies can begin reporting to the credit bureaus as soon as they acquire your account. After that, they will typically report to the credit bureaus every month, like most other types of tradelines on your credit report. Therefore, if you have a collection account, you will most likely see the collection agency reporting every month.

Should You Pay the Debt Collector or the Original Creditor?

If you already have an account in collections, meaning the original creditor has already closed your account and transferred it to another owner, you should not pay the lender that the loan was originally from. The debt now belongs to someone else, so it would be pointless to pay the original creditor.

How Do Collections Affect Your Credit Score?

Having one or more collection accounts on your credit report can quickly lead to bad credit. A collection account on your credit report means you failed to make sufficient payments on a debt, which is a big red flag to lenders that you might default on a loan again. Therefore, your credit score will likely suffer a significant drop if you have an account go to collections.

Collections are major derogatories, so they can lead to bad credit. afeCredit.com, CC 2.0.

However, collections with low balances may not impact your score at all, depending on which credit scoring model is being used to calculate your score, such as VantageScore or a FICO credit score.

FICO scores 8 and 9 ignore both paid and unpaid collections that had an original balance of less than $100.

FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t count paid collection accounts against you and treat medical collections as less important than other types of collection accounts.

Unfortunately, with FICO 8 and previous versions of FICO, which most lenders today still use, all collections are highly damaging to your credit score, regardless of what type of account they are or whether the collections have been paid or not.

Does Paying Off Collections Improve Your Credit Score?

Unfortunately, paying off a collection won’t necessarily improve your credit score right away. Why?

As we said, with all FICO scores except FICO 9 (which is not widely used yet), both paid and unpaid collections are considered to be major derogatories on your credit report. Since a paid collection is still a major derogatory mark, paying off your collection likely won’t help your credit score if the scoring model used is FICO 8 or earlier.

On the other hand, since FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, your score should rebound after paying off a collection with these credit scoring models.

Can a Collection Agency Change the Open Date of a Collection?

The open date of a collection is the date that the collection account was acquired by a debt collector. Every time the debt changes hands, the new collection account will thus have a new open date.

The open date does not affect how long the collection remains on your credit report because it’s the date of first delinquency (DOFD) that determines when the collection will be removed from your credit. While each debt collector will have a different open date, the DOFD cannot be changed unless it was reported incorrectly.

Can a Collection Agency Report an Old Debt as New?

You may have heard of another date pertaining to collection accounts: the “date of last activity” (DLA).

You might have heard it said that you should never make payments on a collection because that action would change the DLA on the account. If the DLA changes, so the advice goes, this “resets the clock” on the seven-year period after which the collection will fall off your credit.

In reality, debt collectors cannot change the DLA—only the credit bureaus can do that. Furthermore, the DLA does not affect the timeline of your collection account.

As we know, the seven-year period begins at the DOFD, not the DLA, and not the open date of the collection. The collection agencies are not legally allowed to change the DOFD, so there should be no legitimate way for them to “restart” the seven-year timeline. Yet there are many cases in which consumers report that their collection accounts are suddenly being updated as new accounts, even if they are several years old. What is going on in these situations?

This shady practice is the collection agency re-aging the debt.

It’s illegal to re-age a collection account by incorrectly changing the DOFD.

When a debt collector acquires an account, they sometimes improperly update the DOFD to be the same as the date opened. If you make a payment on the collection, they may replace the DOFD with the DLA, which is the date that you made the payment. This explains why the seven-year clock seems to restart in these situations.

But guess what? Re-aging a collection is illegal. Collection agencies cannot legally report an old debt as a new collection.

If a collection agency keeps updating your credit report with incorrect information and the date of first activity or the date opened on your credit report is wrong, you have the right to dispute that account and have it updated or removed from your credit report.

Double Jeopardy Credit Report

A “double jeopardy” credit report is when you have multiple collections for the same account on your credit report. This can happen when the debt is being reported by both the original creditor and the collection agency on your credit report or when the debt is sold to another collection agency.

Experian explains why there may legitimately be duplicate accounts on your credit report:

“When an account is charged off, or written off as a loss, it remains on your credit report for seven years from the original delinquency date leading up to the charge off.

Often, the original creditor will transfer or sell the account to a collection agency. In that case, the original account will be updated to show transferred/closed, and will no longer show a balance owed because the debt is now owed to the collection agency. However, your report will still show the history of the account, including the amount that was written off.

Since you now owe the collection agency, it will report the current balance owed.”

In this case, having multiple accounts for the same collection on your credit report is normal and should not change the impact the collection has on your credit score.

A true case of double jeopardy on your credit report involves duplicate collection accounts on your credit report being reported as open collections, which would be even more of a disaster for your credit than having a single open collection account.

Multiple Collection Agencies Same Debt

If your credit report looks as Experian describes, with the old collection accounts accurately reporting as closed, there may not be much you can do besides wait seven years for the collections to fall off your credit report.

However, if the original creditor and/or multiple collection agencies report the same debt as if they are all separate open collection accounts, that may be an error that you need to dispute with the credit bureaus.

How to Remove Collections From Credit Report

It may be possible to remove collections from your credit report depending on the situation.

How to Dispute a Collection on Your Credit Report

If a collection on your credit report is inaccurate or a duplicate collection account, you can dispute the collection account on your credit report. This doesn’t necessarily guarantee that the collection will be removed from your credit report, though, because the account could be updated with the correct information rather than removed.

The Federal Trade Commission provides a guide to disputing errors on credit reports as well as a sample FCRA dispute letter. Alternatively, some consumers may prefer to hire a credit repair service to assist with disputing inaccurate information.

How to Remove Paid Collection Accounts From Credit Report: Pay for Delete Collections

Even once you have paid a collection, you may find that it is difficult or impossible to remove it from your credit file. However, if you do want to try to remove zero balance collections from your credit report, one method that consumers use to do this is the “pay for delete” strategy.

You may be able to negotiate a “pay for delete” agreement with the debt collector.

With the pay for delete method, you negotiate with the debt collector to have them stop reporting the collection to the credit bureaus in exchange for your payment, whether you negotiate to pay the full amount owed or settle the debt for a lesser amount.

It may not be necessary to hire a pay for delete service, since you can look for a sample pay for delete letter online, although a credit repair service might be helpful in this situation as well.

Keep in mind that debt collectors are not obligated to accept the offer outlined in your deletion letter, so this strategy is not a guaranteed success.

If the collection agency does agree to delete the collection once you pay it off, it’s best to get verification of this agreement in writing before you make any payments.

Does Pay for Delete Increase Credit Score?

Remember that FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t penalize paid collections, so it may not be a problem to have a paid collection on your credit report if your lender uses one of these credit scores. In this case, the deleted collection won’t increase your credit score.

However, with FICO 8 and earlier FICO scores, paid collections do hurt your credit, so a successful “pay for delete” arrangement could lead to a credit score increase after collection removal.

On the other hand, you may be shocked to learn that it is possible that deleting a collection could actually make your credit score go down. This is because there are certain scorecards or “buckets” within each credit scoring model that categorize consumers based on what is in their credit file and calculate their score differently depending on what bucket they are in.

As a hypothetical example, let’s say you have one collection on your file and you get that collection deleted. Perhaps you used to be in a scorecard of consumers with one or more major derogatories on file and after the deletion, you get reassigned to a different scorecard in which the consumers have no major derogatories. Since you are now in a higher bucket, your credit score would be calculated differently, and your score could actually decrease compared to what it was when you were in the lower bucket.

How to Remove Collections Without Paying

The only legitimate way to get an unpaid collection removed from your credit report is if the collection is more than seven years old or if it is being reported incorrectly.

If the collection is older than seven years, it should have been removed from your credit report already, so you can dispute that account with the credit bureaus to have it removed.

If the account is being reported inaccurately, such as if the date of first delinquency or the date opened on your credit report is wrong, you can also dispute the account and have it updated or removed as described above.

Conclusions on Collections

If you have a collection account on your credit file, you might end up with bad credit for a while, but it’s not the end of the world. Collections must be removed from your credit file after seven years whether they were paid or not, and the damage to your credit score will lessen as the collection ages.

Some credit scoring models don’t count paid collections against you, so you might see a credit score increase after paying off a collection. Alternatively, you could try to negotiate a pay for delete agreement with the debt collector.

If you have an old or inaccurate collection on your credit report, you can dispute this with the credit bureaus and have it corrected or removed.

Finally, the best thing to do to help your credit recover after a collection is to focus on building credit and maintaining a positive credit history going forward.

Read more: tradelinesupply.com

VantageScore vs. FICO Score: What’s the Difference?

August 23, 2019CreditBy toptierfinancial

If you monitor your credit using a free website, chances are, you’ve seen your VantageScore. However, you may not realize that this credit score is not your FICO score.

So what is a VantageScore credit score and how is it different from a FICO credit score? Is one better than the other? We’ll compare and contrast the two types of credit scores and discuss the merits of each in this article.

What Is a Vantage Credit Score?

The VantageScore credit score, sometimes referred to as a “Vantage credit score,” is a credit scoring model created in 2006 by the three major credit bureaus (Experian, TransUnion , and Equifax) to compete with FICO’s credit scoring models.

VantageScore is a tri-bureau credit score, meaning the exact same model is used at each credit bureau.

The most commonly used version of the VantageScore used by lenders today is the third iteration of the credit scoring model, VantageScore 3.0.

VantageScore Solutions, LLC has released VantageScore 4.0, which is supposed to be more accurate than previous versions, but since it takes lenders a long time to adopt new credit scoring models, most are still using VantageScore 3.0.

Who Uses VantageScore?

According to Experian, VantageScore is used by lenders for all types of loans except mortgages, where FICO is still the dominant player. The largest group of financial institutions that uses VantageScore is credit card issuers.

Non-financial institutions have also increasingly been adopting VantageScore, such as landlords and utility providers.

VantageScore is also widely used by consumer websites that provide educational credit scores and market credit products.

What Is My Vantage Score?

It’s easy to find out what your VantageScore is for free. Credit Karma provides free VantageScore 3.0 credit scores from TransUnion and Equifax, so all you have to do is create an account on creditkarma.com and log in to your Credit Karma account to see your free Vantage credit score.

Credit Sesame and NerdWallet are other sites that provide consumers with free VantageScore 3.0 credit scores from TransUnion.

You can view your free VantageScore with TransUnion and Equifax on Credit Karma.

VantageScore vs. FICO Score

The primary difference between VantageScore and FICO scores is what they are used for.

FICO scores have been in use for a longer period of time and, consequently, are most widely used by lenders to make lending decisions. According to U.S. News, FICO scores are used by 90 percent of “top lenders.”

While VantageScore credit scores are also used by some lenders, they are more well-known for their use as an educational tool.

Both FICO and VantageScore consider the same general categories of information from your credit report (although they use slightly different terms to describe them), which include:

Payment history
Utilization
Length of credit history/age
Mix of accounts/types of credit
New credit activity/recent credit

Since the scores share the same general categories, it is safe to assume that they will both be bolstered by the same common sense behaviors that lead to good credit, such as not using too much of your available credit and not missing payments.

However, FICO and VantageScore assign slightly different weights to each category, as shown in the following table (percentage values are approximate).

FICO Score Factors
VantageScore Factors

Payment history, 35%
Payment history, 40%

Utilization, 30%
Credit utilization, 20%

Length of credit history, 15%
Age and type of credit, 21%

Mix of accounts, 10%
Balances, 11%

New credit activity, 10%
Recent credit, 5%

Available credit, 3%

FICO Score Factors

VantageScore Factors

In addition, within these broader categories listed above, the scoring models have different ways of assigning value to certain variables. Here are a few examples.

Inquiries

Hard inquiries can generally hurt your score by a few points because seeking new credit is considered risky behavior. When people are applying for some types of loans, such as mortgages, auto loans, and student loans, they tend to apply for multiple loans so they can shop for the best rates. Credit scoring models now have different ways of accounting for this behavior so as not to punish consumers for shopping around.

Newer FICO scores group inquiries of the same type together within a 45-day window. That means consumers could apply for 5 auto loans within 45 days and it would only count as one inquiry. Older FICO scores do this within a 14-day window.

FICO scores only apply this rule to student loans, mortgages, and auto loans—not credit cards. According to creditcards.com, the FICO scoring model also includes a 30-day “buffer” against hard inquiries, which means it ignores any inquiries that occurred within the last 30 days.

In contrast, VantageScore groups all inquiries within a 14-day window, regardless of the type of account. You could apply for some credit cards, a student loan, a mortgage, and an auto loan within 14 days, and it would only count as one inquiry.

Collections

Unpaid collections are always going to make a significant dent in one’s credit score, but paid collections and collections with small balances are treated differently between FICO and VantageScore.

With FICO 8, the credit score most widely used by lenders today, all unpaid and paid collections are damaging, regardless of the type of account. FICO 9, the newest FICO score, leaves out paid collection accounts and reduces the impact of unpaid medical collections specifically. Both FICO 8 and FICO 9 disregard collections when the original balance was less than $100.

VantageScore 3.0 and 4.0 are similar to FICO 9 in that they don’t count paid collection accounts and assign less importance to medical collections, but they do not make exceptions for collections with low balances.

Utilization

While utilization is treated fairly similarly with both scoring models, the specific thresholds that affect credit scores vary. VantageScore recommends keeping your credit utilization below 30%, while many experts believe that FICO scores suffer at lower utilization ratios.

Interestingly, the newer VantageScore 4.0 looks at the trends in your utilization over time, such as whether your balances have increased or decreased. FICO scores and previous VantageScore versions only look at the data that is in your credit report at the moment when your score is calculated and do not look “back in time.”

Other Differences Between VantageScore vs. FICO

Tri-bureau vs. single-bureau

With FICO, each credit bureau uses a different version of the score that is specific to that bureau. As a result, consumers often have different credit scores for each credit bureau.

VantageScore, however, was designed to work the same for all three credit bureaus in an effort to reduce the disparity in scores between credit bureaus.

Who can be scored

The two types of scoring models have different requirements for who can be scored.

FICO requires at least six months of credit history and at least one account reported within the last six months. That means if you’re just starting out in building credit, you’ll need to wait six months after opening your first account to establish a FICO score.

On the other hand, VantageScore is able to score consumers with only one month of credit history on at least one account reported within the last 24 months.

Credit score scale

Previous versions of VantageScore had a scale that was different from the scale that the FICO score uses. For example, VantageScore 2.0 ranged from 501-990. The VantageScore 3.0 range was changed to match the FICO credit score scale of 300-850.

However, they have slightly different rating scales within those credit score ranges, as you can see in the table below.

FICO Score
VantageScore 3.0

Credit Score
Rating
Credit Score
Rating

300-579
Very Poor
300-499
Very Poor

580-669
Fair
500-600
Poor

670-739
Good
601-660
Fair

740-799
Very Good
661-780
Good

800-850
Exceptional
781-850
Excellent

What Is a Good Vantage Score?

From the table above, we can see that a good VantageScore is between 661 and 780. Compare this to FICO’s good credit score rating, which is a narrower range of scores from 670 to 739.

720 would be considered a good credit score with both FICO and VantageScore. Photo by CafeCredit.com, CC 2.0.

Similarly, an excellent VantageScore credit score ranges from 781 to 850, while FICO’s “exceptional” credit rating ranges from 800 to 850.

Is There a VantageScore to FICO Conversion Formula?

Unfortunately, there is no Vantage to FICO conversion formula that can be used to calculate your FICO score from your VantageScore and vice versa.

As we learned in our comparison of VantageScore vs. FICO scores, the two scoring models assign different values to each credit score category and even have slightly different categories.

They also use different proprietary algorithms, the details of which are carefully guarded trade secrets.

To make things even more complicated, both FICO and VantageScore utilize “scorecards” or “buckets” to categorize consumers. Each scorecard has a different way of scoring consumers. In other words, the specifics of the credit score algorithms vary for different consumers even within the same version of a credit score.

Since each credit score is so complex and we as consumers do not have access to the secret algorithms, there is no reliable or accurate way of converting between the two.

Why Is My Vantage Score Lower Than FICO?

Since VantageScore and FICO scores differ in the weights they assign to each category and variable within the scoring model, it is likely that one will usually be lower than the other.

Since payment history is weighted more heavily with VantageScore than FICO (40% vs. 35%, respectively), a missed payment could bring your VantageScore down a bit more than your FICO score.

Another reason for having a lower VantageScore could be having unpaid low-balance collections on your credit report, which hurt your VantageScore but not your FICO 8 or 9 score.

However, what people tend to see more commonly is that their VantageScore is slightly higher than their FICO score because VantageScore seems to be more forgiving when it comes to credit utilization.

Which Credit Score Is Better?

Unfortunately, there is no straightforward answer to the question of which credit score is superior to the other. Each credit score has value for its respective purposes.

Although some people dismiss VantageScore as being a “fake” or inaccurate version of a FICO score, that’s not necessarily a fair comparison. Although both scores emphasize the same general credit principles, they have significant differences in the ways they treat certain factors. VantageScore is intended to be a competitor to FICO, not an exact replicate, so we shouldn’t expect them to be the same.

Since the same general principles shape how both scores work, however, oftentimes what helps one will help the other. This is why VantageScore has been so successful as an educational score offered by many free sites despite its differences from FICO.

While consumers may often have to pay to get their FICO score, they can monitor their credit and get a good idea of what is affecting their score for free using consumer websites that employ VantageScore. They can then take action that will help improve both their VantageScore and their FICO score.

Therefore, for general credit-building purposes, VantageScore is just as useful as FICO.

That said, it is important to keep in mind that most lenders still use FICO scores and many use earlier versions of FICO, which may be less comparable to VantageScore credit scores. If you are applying for a mortgage soon, for example, you’ll probably want to pull your FICO score in addition to your VantageScore, since mortgage lenders overwhelmingly use FICO in their lending decisions.

VantageScore and FICO scores are both important to get to know as a consumer, especially as VantageScore gradually becomes more popular with lenders.

What do you think about the VantageScore credit score? Have you compared yours to your FICO score? We’d love to hear your thoughts in the comments.

Read more: tradelinesupply.com

How to Increase Your Credit Limit

August 20, 2019CreditBy toptierfinancial

If you have credit cards with low credit limits, you may be interested in increasing your credit limit. In this article, we’ll talk about why your credit limit is important, reasons to increase your credit limit, when and how to request a credit line increase, and more. Keep reading for everything you need to know about how to increase your credit limit.

How Does Your Credit Limit Affect Your Credit Score?

The obvious reason why you should care about your credit limit is that it controls the amount you can spend on that particular credit card. But beyond that, your credit limit also indirectly affects your credit score.

Although credit limit itself is not a factor in credit scores, it plays a role in your credit utilization ratio, which is an important part of your credit score. In fact, utilization makes up about 30% of a FICO score.

Your credit utilization ratio is the amount of debt you owe divided by your credit limit, typically expressed as a percentage. For example, if your credit card has a $10,000 credit limit and you owe $2,000 on it, your utilization on that card is 20% ($2,000 / $10,000 x 100% = 20%).

The above example is an individual utilization ratio since it is the utilization ratio of a single card. Your overall utilization ratio is similar, but it includes all of your revolving debt added together divided by the total credit limit of all of your revolving accounts. Both individual and overall utilization are accounted for in your credit score.

Why is utilization such an important part of one’s credit score? High utilization means high risk for lenders. If you are using most or all of your available credit, this indicates that you may be overextended and you might have trouble paying off your debts. Therefore, high utilization lowers your credit score because it means you are more likely to default.

Utilization (how much you owe) makes up 30% of your FICO score.

On the other hand, low utilization means you are not using very much of your available credit, which indicates to lenders that you are at low risk of defaulting. Therefore, keeping your utilization low is a good thing for your credit score.

Why Increase Your Credit Limit?

To bring this all back to your credit limit, remember that your credit limit affects your utilization ratio. Consider an example in which someone owes $500 on a $1,000 limit credit card. Their utilization is 50%, which is high enough to potentially have a negative impact on their score. But if they were to increase their credit limit to $2,000, their utilization would go down to 25% ($500 / $2,000 x 100% = 25%), which could help out their credit score.

Essentially, increasing your credit limit helps lower your utilization ratio, which can benefit your credit health.

Plus, it gives you more spending power if you ever need it to make a big purchase.

One important caveat: this strategy only works if you do not run up the balance on your credit cards. If increasing your credit limit means you will just continue to spend up to your credit limit and get in more debt, then it’s probably not a good idea.

How to Increase Your Credit Limit

There are a few different ways to go about raising your credit limit.

Wait for the credit card issuer to automatically increase your credit limit.

Lenders will often automatically bump up your credit limit after you have had the credit card after a certain amount of time, provided you have used it responsibly and paid on time every month. However, you usually have to wait several months after opening a card to be considered for a credit limit increase.

Request a credit limit increase.

If you haven’t gotten an automatic credit limit increase, you can request one. You can do this over the phone or on the credit card issuer’s website.

Generally, if you apply for a credit line increase online, this will result in a hard credit pull. However, if you call and talk to a representative, you may be able to get an increase with only a soft pull, depending on the situation.

When you request a credit line increase, you should be ready to provide your total annual household income, your employment status, and the amount of your monthly rent or mortgage payment. Credit card issuers typically state that you can include income from someone else if that person’s income is regularly used to pay your expenses.

Some lenders may ask you to explain why you need or deserve a credit line increase, so be prepared to explain the reason for your request. They may also inquire about how much you spend on credit cards each month.

When to Request a Credit Line Increase

It’s best to wait until the right time to request a credit line increase. Just like applying for a new credit card or loan, you want your credit and your income to be in good shape when you request it.

Potentially good times to request an increase:

A good time to request a credit line increase is after you get a pay raise at work.

After you receive a raise
After you have been a responsible cardholder for at least 6 months
If you have not requested an increase in at least 6 months
When you do not have many inquiries on your credit report
When your credit score is high

Situations when you might want to hold off:

If you lose your job or take a pay cut
If you have recent late payments or other derogatories
If your cards are maxed out or at high utilization
If you have only been making the minimum payments on your card
If your account is less than 6 months old
If your credit limit has changed within the past 6 months
If you have applied for multiple other credit cards or loans recently
When your credit score is low

How Much Should You Request?

There is no hard-and-fast rule when it comes to how much of an increase to ask for.

You could try calling your bank and asking the representative if there is an amount they could approve without doing a hard pull.

Another approach is to ask for more than you think you need. If the bank does not approve the full credit line increase that you asked for, they will often counter with the maximum amount that they can offer you.

Will Requesting a Credit Limit Increase Affect Your Credit Score?

Depending on the lender and the amount that you request, the credit card issuer may conduct a soft or hard inquiry on your credit. They want to see what your credit report looks like before taking the risk of granting you even more credit.

Check with your credit card issuer to see if requesting a credit limit increase will trigger a soft or hard inquiry.

Are inquiries really killing your credit? Click the image to read the article.

As we discussed in “Are Inquiries Really Killing Your Credit?” a hard pull could reduce your credit score by a few points, but it’s not the end of the world. As long as you keep your inquiries to a minimum, it shouldn’t present much of a problem. It’s when you have several recent inquiries on your credit report that you start to look like you are desperate for credit and you may get denied by lenders.

However, as we discussed earlier, the more significant potential impact to your credit score is the decrease in your utilization ratio if you do get approved for a credit line increase. Since utilization makes up about 30% of a credit score, improving that factor could benefit your score and would likely outweigh the impact resulting from a hard inquiry.

What Are the Downsides to Increasing Your Credit Limit?

Besides the impact on your credit score of potentially getting a hard inquiry, there are a few other drawbacks to consider when increasing your credit limit.

Some credit card issuers may charge sneaky fees to increase your credit limit. If you don’t want to pay a fee, make sure to check the terms of your card before requesting a credit line increase.

In addition, having access to more credit could encourage you to spend more, which could end up doing more harm than good to your credit score and to your overall financial health.

Other Ways to Increase Your Credit Limit

If you can’t get a credit line increase on an existing card, you can open a new credit card.

You don’t necessarily have to ask for a credit line increase if you want to get a higher credit limit.

Another option is to transfer some or all of your credit limit from another credit card to the card you want to extend. However, with this method, the two cards need to be from the same bank, and not all banks allow customers to do this.

If your bank does allow credit limit transfers, you could open a new credit card with them, take advantage of any signup bonuses offered, and then transfer the limit to your older card.

If transferring is not an option, opening up a new credit card with any bank will still increase your overall credit limit and utilization ratio, assuming you do not run up a balance on the card.

Have you tried requesting a credit limit increase before? Which of these methods do you plan to try next? Let us know in the comments below!

Read more: tradelinesupply.com

How to Get an 850 Credit Score

August 19, 2019CreditBy toptierfinancial

People who are serious about improving their credit often wonder what it takes to get the highest possible credit score. For the FICO 8 credit scoring model, the perfect credit score is an 850. Only 1.2% of consumers have the elusive 850 credit score.

There are many other credit scoring models that are used for different purposes and may have different credit scoring ranges. However, since FICO 8 is the most commonly used credit score, we will use 850 as the benchmark for the ideal credit score.

Keep reading for our tips and tricks for getting the highest credit score possible: the coveted 850 credit score.

Payment History — 35%

Most people who have an 850 credit score have seven years of perfect payment history.

Your payment history is the biggest slice of the credit score pie, so even one late payment or missed payment can significantly affect your score. Negative items can stay on your credit report for up to seven years, so if you miss a payment, you may not be able to achieve a perfect 850 credit score until at least seven years have passed!

To safeguard against the possibility of forgetting to make a payment, consider setting up automatic bill pay for all of your accounts. Be sure to continue to check your accounts regularly in case of any system errors.

If you do miss a deadline once in a blue moon but have otherwise been an upstanding customer, try negotiating with your creditor to see if they will forgive the late payment and wipe it from your record.

FICO says that 96% of “high achievers,” or those with FICO scores above 785, have no missed payments on their credit report.

Essentially, to get an 850 credit score, you just need to follow one simple strategy: make all of your payments on time for a long time. We will further discuss the connection between payment history and time in the “Length of Credit History” section below.

Credit Utilization/How Much You Owe — 30%

The amount of debt you owe compared to your total credit limit is your credit utilization ratio. To get a perfect credit score, you’ll want to keep this ratio as low as possible, both overall and on each of your individual tradelines.

According to Experian, “Among consumers with FICO credit scores of 850, the average utilization rate is 5.8%.”

A study by VantageScore and MagnifyMoney found that people with the best credit scores and people with the worst credit scores actually had similar amounts of outstanding debt. However, those with the best scores had an average total credit limit of $46,700—16 times the credit limit of those with the worst scores!

Therefore, for the high scorers, that outstanding debt made up a much smaller percentage of their total available credit than those with low credit limits and poor scores, which highlights the importance of the overall utilization ratio.

This study reported that the average credit card user has an overall utilization ratio of 20%, which is generally considered to be a safe number for maintaining decent credit. To become someone who has an 850 credit score, however, you’ll need to keep it around 5% or lower.

While consumers with 850 credit scores do use credit cards, they tend to keep their utilization ratios around 5% or lower. Photo by Ellen Johnson.

In addition, keep in mind that even if you have a low overall utilization ratio, individual cards with high utilization could still bring down your score.

As a hypothetical example, let’s say you have two cards: one with a $10,000 limit and a $0 balance and the other with a $1,000 limit and a $900 balance. Your total available credit is $10,000 + $1,000 = $11,000 and your total debt is $900. Therefore, your overall utilization ratio is $900 / $11,000 = 8% utilization, which is a very good number.

However, your account with the $1,000 limit has a 90% individual utilization ratio! Since you only have two accounts, that means 50% of your accounts have high utilization, and that could negatively affect your credit. According to creditcards.com, maxing out just one credit card can reduce your score by as many as 45 points.

To get around this problem, if you have any individual cards with high utilization, consider transferring the balance to other accounts to keep the utilization ratio on each account as low as possible.

You could also request credit line increases from your creditors, which could lower your utilization ratios and benefit your score.

Another way to help with overall utilization is to add low-utilization tradelines to your credit file.

Length of Credit History (Age) — 15%

This category takes into account age-related factors such as the average age of your accounts, the age of your oldest account, and the ratio of seasoned to non-seasoned tradelines. (A seasoned tradeline is at least two years old, which is when the account is believed to have a more positive impact on your credit score.)

The more age your accounts have, the more they will help your credit score.

Age goes hand-in-hand with payment history, because the more age an account has, the more time it has had to build up a positive or negative payment history. Together, age (15%) and payment history (35%) make up 50% of your credit score, which shows how important it is to open accounts early and make every single payment on time.

This is also why we always say that focusing on age is the #1 secret to unlocking the power of tradelines.

According to FICO, the age of the oldest account of people who have 650 credit scores is only 12 years, compared to 25 years for people who have credit scores above 800. In addition, individuals with fair credit have an average age of accounts of 7 years, compared to 11 years for those with excellent credit.

Cultivating an 850 credit score takes years of maintaining a positive credit history.

CreditKarma reports that a 2011 study found the average length of credit history for consumers with 850 credit scores to be 30 years.

We have an in-depth discussion of which age tiers are most significant in our article, “Why Age Is the Most Valuable Factor of a Tradeline,” but the bottom line for getting the best credit score is simply to get as much age as possible. Seasoned tradelines can help by extending the age of the oldest account and the average age of accounts.

Maximizing this factor also means not closing old accounts, because their age could be helping your score. To ensure old, dormant accounts don’t get automatically closed by the banks for inactivity, try to use them at least few times a year.

Also, keep in mind that it may be impossible to achieve an 850 credit score without a certain amount of age, even if you do everything else perfectly. So if you have stellar credit habits but haven’t yet been able to join the 850 credit club, you may just need to wait patiently.

Credit Mix — 10%

While the mix of credit is one of the least important factors in a credit score, to get a perfect credit score of 850, you may still need to optimize this factor.

In this category, credit scores reward having a balanced mix of several different accounts, including both revolving credit and installment loans. This is because creditors want to see that you can successfully manage a variety of different types of credit.

As an example, a credit file that includes an auto loan, a mortgage, and two credit cards has a better credit mix than a credit file that has four accounts that are all credit cards.

About the “credit mix” credit score factor, FICO says, “Having credit cards and installment loans with a good credit history will raise your FICO Scores. People with no credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly.”

The total number of accounts is also considered, with more accounts generally being better, up to a certain point.

FICO also states that high score achievers have an average of seven credit card accounts in their credit files, whether open or closed.

Auto loans are common among people who have 850 credit scores.

If you are looking to improve your credit mix statistics, adding authorized user tradelines can increase the total number of accounts and help diversify one’s credit file.

850 scorers also have installment loans in their credit files. According to Experian, the average mortgage debt for consumers with exceptional credit scores (800 or above) is $208,617. In addition, people who have FICO scores of 850 have an average auto-loan debt of $17,030.

Experian says, “In every other debt category except mortgage and personal loan, people with perfect scores had more open tradelines but less debt than their counterparts with average scores—underscoring the value of being able to manage debt while having numerous credit accounts.”

New Credit — 10%

The “new credit” category of your credit score refers to how frequently you shop for new credit. This includes opening up new credit cards and applying for loans, for example. This “new credit” activity is reflected in the number of inquiries on your credit report.

Since seeking new credit makes you look like a higher risk to creditors, each hard inquiry has the potential to drop your score by a few points. Therefore, if you are going for the enviable 850, it’s best to avoid applying for new credit for a while.

If you need to shop for an auto loan or mortgage, be sure to complete all your applications within a two-week window in order for all of the credit pulls to count as one inquiry. For credit cards, however, each inquiry will be typically be counted individually.

Fortunately, inquiries only remain on your credit report for two years, and FICO scores only consider inquiries that occurred within the past year, so it shouldn’t take long for your credit to recover if you do have new credit inquiries on your report.

More Tips on How to Get an 850 Credit Score

In addition to optimizing each of the above five categories that factor into your credit score, it is also important to regularly check your credit reports and dispute inaccurate information.

In addition, those with very high credit scores rarely have serious delinquencies or public records on their credit reports, such as bankruptcies or liens. Obviously, this will be easy to avoid if you follow all of the suggestions above, but if you already have a messy credit history in your past, it could take up to 7-10 years to recover enough to get an 850 credit score.

850 Credit Score Benefits

What are the benefits of being in the 850 credit club? In reality, you’ll be able to take advantage of the benefits of having an excellent credit score whether you have a 760 credit score or an 850 credit score. You don’t need to score a perfect 850 to get the best credit cards or the best interest rates on loans.

That said, the main benefit of having the best possible credit score is bragging rights.

Final Thoughts on How to Get the Perfect Credit Score

While it’s probably not necessary to get an 850 credit score, it is smart to work toward that goal by managing your credit wisely, which will eventually get you into the upper levels of high credit score achievers.

The most important factors of your credit score are payment history, utilization, and age. Therefore, to keep your credit in pristine condition, you’ll need to make all of your payments on time, keep your utilization as low as possible, and maximize your credit age. Beyond that, you’ll also want to maintain a balanced mix of accounts and minimize new credit inquiries.

Finally, take advantage of your three annual free credit reports to make sure your credit reports are free of damaging errors.

To summarize, here’s an example of what the credit profile of someone who has an 850 credit score might look like:

No missed payments or delinquencies within the past seven years
A high total credit limit
The overall utilization ratio is 5% or lower
Individual credit cards each have low utilization, around 5% or lower
The oldest account is likely about 25-30 years old
The average age of accounts is at least 11 years
Typically has at least seven credit card accounts (whether open or closed)
Usually has an auto loan and/or a mortgage loan
May have additional installment loans
No inquiries within the past year
No damaging errors on their credit report

Read more: tradelinesupply.com

What Are Credit Scores and How Can Tradelines Help?

July 18, 2019CreditBy toptierfinancial

When it comes to credit scores, there’s a lot of confusion and misinformation out there. Our credit scores impact our lives in more ways than you might think, yet, unfortunately, they are complicated and difficult to understand. In this article, we’ll clear up what credit scores are, why they matter, how to build credit, and how to improve your credit score.

What Is a Credit Score?

A credit score is a 3-digit number that is meant to represent your credit risk, or how likely you are to default on a loan. This credit rating is calculated based on the information in your credit report, which lists your current and recent credit accounts.

To use an analogy, your credit report is like your school transcript: it is a list of your current and recent credit accounts and how well you did in paying them off on time. Your credit score rating is like your overall GPA: it sums up all of that credit history information into a single number.

While there are many different versions of credit scores, most lenders use a FICO credit score. Another credit score, called the VantageScore, was developed by the three major credit bureaus: Equifax, Experian, and TransUnion. The VantageScore is primarily used for educational purposes rather than lending decisions.

Both the VantageScore and the FICO credit scores range from a low of 300 to the highest score of 850. Lower numbers represent a higher likelihood of defaulting on a loan, which is considered bad credit, while higher numbers represent a lower likelihood of defaulting on a loan, which is considered good credit.

Why Is Your Credit Score Important?

If you ever want to buy something using credit instead of cash—a house or a car, for example—you’ll likely want to have a good credit score. Your credit score is what lenders use to decide whether or not they should loan you money and what the terms of that loan should be.

If you have a bad credit score or no credit score at all, you may have a hard time getting credit from lenders.

If you don’t have a credit score or credit history at all, lenders don’t have a way of judging your creditworthiness. Therefore, they may see you as too much of a risk and decline your request for credit.

If you do have a credit score, lenders will see it as a representation of how risky it is to lend money to you. A great credit score means you are a low-risk borrower, which means lenders can offer you low interest rates and other perks, such as credit card rewards.

On the other hand, a low credit score represents a high risk to lenders, since it shows that you may be more likely to default on a loan. To compensate for the higher risk of default, lenders charge higher interest rates and fees to those with poor credit scores—if they are willing to extend credit at all.

Your credit score doesn’t just affect your access to credit and the costs associated with using credit. Credit scores have increasingly been used for a variety of non-credit applications.

Phone carriers and utility providers may require a security deposit based on the results of your credit check.

A significant percentage of employers do credit checks on prospective employees, so a bad credit score could cost you your dream job.
Your credit score may affect what you pay for insurance, so you’ll want to have a good credit score if you want to get the best insurance rates.
Landlords often check credit scores of applicants to see how reliable they are in paying their bills.
Utility providers and even cell phone carriers may check your credit score to determine whether to charge you a security deposit upfront.

As you can see, credit scores affect a lot more than just your ability to get credit, and it is more important than ever to prioritize building your credit score.

What Factors Determine Credit Scores?

Although the specific algorithms behind credit scores are closely-guarded trade secrets, the general categories that affect credit scores are widely known. In general, here’s what makes up a credit score:

Payment history: 35%. This is the most important piece of your credit score, so even one late or missed payment can do a lot of damage.
Utilization (how much you owe): 30%. Your utilization ratio is the ratio of the amount of debt on all your revolving accounts (e.g. credit cards) to your total available revolving credit, expressed as a percentage. Credit scores may account for both your overall utilization ratio and the utilization ratio of each individual tradeline. The lower your utilization, the better for your credit score.
Length of credit history: 15%. This category considers factors like your average age of accounts, the age of the oldest account in your credit file, and the ratio of “seasoned” to non-seasoned tradelines. A seasoned tradeline is defined as one that is at least two years old, at which point it is believed that the account begins to have a more positive impact on your credit score. The more age your accounts have, the more they will help your credit score.

These five main factors affect your credit score.

Credit mix: 10%. Creditors want to see that you can responsibly use different types of credit, so they look for a variety of accounts in your credit report, including both revolving credit accounts and installment loans.
New credit: 10%. This credit score category takes into account any new inquiries and new accounts that you have added in the past 6 to 12 months. Creditors consider seeking new credit a risky behavior, so inquiries can hurt your score. Opening a new account can also have a temporary negative effect on your score since it has no age or payment history.

What Is a Good Credit Score?

Scores between 670 and above are considered good credit scores. Very good credit scores lie between 740 and 799 while excellent credit scores include scores of 800 and above.

Which credit score is the best? Only about 1% of Americans have the coveted 850, a perfect credit score.

Credit scores range between 300 and 850, with 850 being the best credit score possible.

How to Get a Good Credit Score

The most important factor of a good credit score is a history of on-time payments.

Here are some things that can help you get a good credit score:

A history of on-time payments
Low utilization ratios
Accounts that are at least 2 years old
A mix of different revolving and installment accounts
Minimal inquiries
Monitoring your credit report for errors

Learn more about how to increase your credit score with do-it-yourself credit repair strategies and our guide to how to get an 850 credit score.

What Is a Bad Credit Score?

According to Investopedia, credit scores of 579 or below are considered bad credit scores, with 61% of borrowers in this credit score range being predicted to become delinquent on future loans.

Credit scores in the range between 580 and 669 are considered fair because only 28% of these borrowers are predicted to become delinquent on future loans. Unfortunately, even those with fair credit scores often have difficulty getting credit and higher interest rates than those with good or excellent credit scores.

Bad credit scores can have serious consequences that reach farther than just your finances. For more on bad credit, its effects, and how to fix it, check out our article on bad credit.

Here are some things that can lead to a bad credit score:

Having too much debt can bring down your credit score.

Late or missed payments
High credit card balances
Low account age
Not enough accounts
Too many inquiries
Collections
Judgments
Foreclosure
Bankruptcy
Identity theft

How to Build Credit

To build credit, you’ll need to open your own credit accounts and keep them in good standing by always making payments on time. This is the foundation of a good credit score.

Once you build credit by piggybacking, you can open your own accounts to continue building your credit score.

However, as we mentioned, it can be difficult to start building credit since lenders typically want to see a credit score and credit history before extending credit.

The fastest way to build credit, especially for those who have a limited credit history, is to piggyback on the credit of someone else. Examples of credit piggybacking include getting a cosigner or guarantor in order to qualify for credit, opening a joint account with someone, or being added as an authorized user.

Once you have started to establish a credit history by piggybacking, you can continue to build up your credit by opening up more tradelines. You can also add tradelines to your credit file that already have years of perfect payment history to help balance out the effects of any derogatory accounts.

Remember, tradelines are the foundation of building credit because all credit starts with tradelines.

How to Improve Your Credit Score

If you need to fix your credit score, there are some strategies you can use to repair your credit score yourself, such as disputing errors on your credit report and paying down high credit card balances.

Since payment history makes up the majority of your credit score, the most important thing is to get all of your accounts current and make sure to make all payments on time in the future, and your credit score should gradually recover.

When it comes to boosting your credit score, lasting results will require patience, good financial practices, and knowledge of how the credit system works. Use our free educational resources to learn more about credit scores, building credit, and how tradelines can help add credit history to your credit report.

Ready to buy tradelines? See our updated tradeline list now.

Read more: tradelinesupply.com

Business Credit Starts With Personal Tradelines

June 21, 2019CreditBy toptierfinancial

Many people dream of starting their own business one day, but not everyone can fund their business ventures with their own savings. Most entrepreneurs will probably want to apply for business credit at some point.

If you are interested in building business credit, our article breaks the difference between business credit and personal credit, what business tradelines are, and how to build business credit.

What Is Business Credit?

Building business credit is similar to building personal credit, but it’s actually a completely separate system. Just as individuals have personal credit scores that are meant to represent their creditworthiness, businesses have business credit scores to represent the company’s creditworthiness.

Why Do You Need Good Business Credit?

Good business credit shows that your business has been reliable in paying creditors, which indicates that it is a good candidate to loan money to or do business with.

Establishing business credit is essential if you ever want to be able to make purchases from vendors on credit or open a business line of credit to help support your company. Virtually all business will likely want the option of using credit at some point.

What Is a Business Credit Score?

Business credit scores, however, are determined by the major business credit bureaus: Dun & Bradstreet, Equifax, and Experian. Each bureau has a different way of collecting information and determining your business credit score. FICO also offers a credit scoring service for small businesses.

Dun & Bradstreet generates a Paydex score, which rates the creditworthiness of businesses on a scale from 1 to 100, 100 being the best score. The D&B Paydex score is entirely based on payment history. Similar to a personal credit score, it helps creditors decide whether to loan money to a business and what the terms of the loan should be.

Interestingly, an on-time payment history does not earn a perfect Paydex score. To get a business credit rating of 100, a business must consistently pay creditors 30 days in advance of the due date. Merely paying on time will only result in a credit score of 80.
In addition, the Paydex business credit score is weighted by dollar amount, so larger accounts could impact your score more than smaller accounts.

Equifax has three different credit scores for businesses.

Business credit reports may include information beyond just credit accounts, such as legal filings and public records.

The business payment index is similar to the Paydex score. It ranges from zero to 100 based on whether payments were made on time.
The business credit risk score is intended to predict the likelihood that a business will become seriously delinquent on payments. Scores can range from 101 to 992.
The business failure score aims to predict the probability of a business closing within 12 months. The score ranges from 1,000 to 1,610 with a lower score indicating that the business seems more likely to fail within 12 months. With both the business credit risk score and the business failure score, a score of 0 corresponds to bankruptcy.

Experian provides a business CreditScore report that includes a credit score for businesses in addition to other relevant information such as public records and account histories. The Intelliscore, Experian’s business credit score, ranges from 0 to 100, but it is different from the D&B Paydex score because it takes into account other factors besides just payment history.
FICO’s Small Business Scoring ServiceSM ranges from 0 to 300 and is used by the Small Business Association in evaluating credit decisions. FICO’s small business credit score may actually include information from the principal borrower’s personal credit report, so your personal credit could have an impact on your small business credit score.

Business credit reports aren’t free, so if you want a business credit check, you will have to pay the bureau providing the business credit report.

How to Build Business Credit

To build up a Paydex credit score, a business needs to obtain a DUNS number from Dun & Bradstreet and establish a payment record with at least four vendors, according to NerdWallet. Since the Paydex score is solely based on how quickly businesses pay their debts, you’ll want to pay your suppliers ahead of schedule to build your Paydex business credit score.

Building business credit is much like building personal credit, although business credit has a different reporting system.

In establishing business credit, as with personal credit, the most important factor is maintaining a good credit history. However, business credit reports can often take into account additional information, such as legal filings, public records, and the age and size of your company.

Things that can hurt your business credit score include:

Slow or late repayment of debt
Missed payments
Judgments, collections, or liens on your business
Outstanding balances/high credit utilization
Not enough years of being in business

Just like personal credit reports, business credit reports can and often do contain errors. it is important to regularly check your business credit report for errors that could be damaging your score.

What Are Business Tradelines?

To get business funding, you will typically need to have solid revenue and strong personal credit, not just business tradelines.

Business tradelines are all of the credit accounts belonging to your business. Examples of business credit tradelines include business lines of credit, business loans, business credit cards, and credit accounts with individual suppliers.

Those hoping to get business credit to start or expand their own businesses may seek out business tradelines for sale to help them build their business credit rating. However, similar to buying primary tradelines, trying to buy tradelines for business credit might not be a good idea for several reasons.

Firstly, business tradelines don’t always report to the credit bureaus. Many business tradelines are not necessarily loans or credit cards, but accounts with individual vendors that allow you a certain period of time to pay your bills. Not all vendors report payment activity, so many times businesses are required to pay Dun & Bradstreet a monthly fee to verify their credit history.

In addition, getting business credit usually depends more on having strong personal credit and a healthy business revenue than having a certain number of business tradelines on file.

How to Get Business Credit

While Tradeline Supply Company, LLC does not assist with tradelines for business credit or business funding, we can share some general information on the subject.

Generally, one of the most important factors in getting business credit is to be a personal guarantor, especially for a newer business that does not have much credit history. As a personal guarantor, it is essential to have excellent personal credit.

Business lenders will likely check your personal credit even if you are not serving as a guarantor.

Even if you are not a personal guarantor, often lenders will still check your personal credit when you are applying for business funding. So while business credit may be the long-term goal, the way to achieve this goal is to first build and maintain your own outstanding credit report.

Therefore, one of the best steps you can take toward establishing business credit is building up your own credit history with high-quality tradelines so you can serve as a personal guarantor for your business. Seasoned authorized user tradelines are a great way to quickly add years of perfect payment history to your credit file. See our updated list of available tradelines now.

Read more: tradelinesupply.com

How to Choose a Tradeline: A Buyer’s Guide

May 14, 2019CreditBy toptierfinancial

*Click here to check your utilization ratios and average age of accounts with our custom calculator!*
Understanding How to Choose the Best Tradelines

If you’re just starting out in the world of tradelines, we recommend taking a look at our Tradelines 101 infographic to get the basics down before moving on to deciding which tradelines to purchase. If you’re already familiar with the concept of tradelines and want to learn how to select the best tradelines for sale, then this buyer’s guide is for you.

When shopping to buy tradelines, there are basically only two main variables to consider:

(1) the age of the card, and

(2) the credit limit.

All the other variables should be about equal, which includes having a perfect payment history, low utilization (at or below 15%), the type of account (usually a revolving credit card), and the reporting date.

In most cases, if you buy from a reliable tradeline supplier, the name of the bank should not matter, except in instances where you may be blacklisted from that bank due to filing for bankruptcy or having unpaid collections with that bank.

So, with only two variables to consider, why is it so challenging to be able to choose the right tradelines? The answer is that most people’s credit files are fairly complex due to their depth of credit history. People have numerous data points in their credit file and all that data plays some sort of role in calculating their credit score.

Every person’s credit file is unique, making it very difficult to discuss how tradelines may affect anyone “on average.” Additionally, there are multiple different credit scores, each with their own closely guarded algorithm that takes into account a very large amount of data points within someone’s credit report.

When choosing the best tradelines for your situation, it’s not just about buying the top tradelines in terms of price. To get the results you want, you will need to understand what is already in your credit file and how adding tradelines could affect the important factors in your file.

Most people’s credit files contain a lot of complex information, which can make it difficult to predict how adding tradelines will affect one’s credit.

Credit Limits and Utilization Ratios

Let’s discuss each of these variables individually, starting with credit limits.

In most of the free credit score simulators out there, you can only change a very limited number of variables. So when it comes to trying to guess how a tradeline may affect your credit score, it usually only allows you to enter a new credit limit amount and then it generates a new credit score estimate.

The credit score simulator (sometimes referred to as a credit score calculator) assumes you are opening a new credit card with whatever limit you type in. Essentially, it is only looking at your overall utilization ratio, and not taking into account the age that you would gain from adding a seasoned tradeline.

As far as utilization, many professionals would suggest that you want to stay below 20% ideally. From our experience, we have seen that utilization ratios of 30% – 40% or higher start to pull credit scores down.

The higher the utilization ratio, the more your credit score will decrease, even if these accounts are always paid on time. Most credit specialists would recommend keeping your overall utilization ratio below 20% or even lower.

However, things get much more complicated in instances where someone has several credit cards with different utilization ratios.

Let’s say for example that someone has seven established credit cards, where two have zero balances, two are at 50% utilization, one is at 75%, and the last two are completely maxed out.

Sure, buying some tradelines with high limits might be able to get the overall utilization down to the targeted 20% level, but that does not eliminate the fact that that person still has five credit cards with high utilization, and each of these five cards is pulling down the credit score down due to high individual utilization.

Can a High-Limit Tradeline Help Lower Someone’s Overall Utilization Ratio?

In theory, a higher-limit tradeline can help lower someone’s overall utilization ratio, but this alone may not completely solve the problem of having credit cards with high utilization. Negative factors are always going to play a role in the credit score and having any high-utilization credit cards is a negative factor.

However, having a lower overall utilization ratio would be a positive change and may still yield some benefit despite the fact that the individual credit cards with high utilization will still remain in the equation.

We have even heard of metrics in the secret credit score algorithm that look at the percentage of high-utilization credit cards in someone’s credit file relative to the total number of credit cards they have.

For example, if someone has two credit cards, one with a $5,000 limit where they owe $5,000 on it and another credit card with a $25,000 limit where they owe zero on it, their overall utilization ratio is relatively low at 16.67% but they would be at 50% on the percentage of revolving accounts with high utilization. In this example, the 50% ratio of high utilization cards could possibly have a negative impact even though the overall utilization ratio is within the ideal range.

There may be other reasons why some people are interested in adding higher-limit tradelines to their credit file that have nothing to do with the typical goal of raising their credit score.

For example, some people believe that having higher-limit accounts in their credit file may increase their odds of getting approved for higher-limit credit cards or other types of loans. We do not have any knowledge about the validity of these beliefs, nor do we help people with funding in any way, but we are aware that such strategies exist in the marketplace.

This is an additional reason why some individuals might be interested in a high-limit tradeline even if there is not very much age on the account, which also makes the cost of a tradeline cheaper.

Examining the Age of a Tradeline

This leads us to the second variable to discuss, which is the age of the tradeline. We feel that age is the most important of the two factors of a tradeline. In general, a credit score is broken down into the following categories:

35% your payment history
30% how much you owe
15% length of credit history
10% credit mix
10% new credit

The utilization ratios fall under the “how much you owe” category, which accounts for about 30% of your score. Again, if you are only improving the overall utilization ratio but you are still being pulled down by individual card utilization ratios, then you may not be benefitting from the full 30% of the power of this category. Your benefit may be as little as 10-15% if you still have individual cards with high utilization ratios.

However, the tradelines we offer are going to have a perfect payment history, which is the category that can affect your score by as much as 35%. They also have the ability to affect the “length of credit history” category which accounts for another 15% of the score.

When added together, the payment history (35%) plus the length of credit history (15%) amounts to about 50% of a credit score. These two categories, which account for about 50% of a credit score, are both affected by the age of the tradelines.

This is why we believe age is the most important factor of tradelines, making “seasoned” tradelines the most valuable type.

“Seasoned” tradelines, or those that are at least two years old, are the most valuable type of tradeline.

In the age category, just like the utilization category, there are several different variables. To name a few, the credit score algorithm may look at your average age of accounts, the oldest account in your profile, the number or percentage of non-seasoned accounts (less than 2 years old) in your file as well as the number or percentage of seasoned accounts in your file.

Also, different scoring models may or may not include data on closed accounts and have varying degrees of how much weight they give to closed account information.

To illustrate an example, we have seen a credit report of a person who had over a 700 credit score with no open accounts at all. So 100% of that 700+ credit score was made up of data from closed accounts only.

We also know the opposite can be true, where someone has zero open accounts but several closed accounts with derogatory information and their credit score is very low, all from closed account data. So it is safe to say that closed accounts can still play a significant role in someone’s credit score since it is still part of their credit history.

One of the most important variables related to the length of credit history is the age of the oldest account in someone’s credit profile. This variable is very straightforward, except that it may be split into two categories: open accounts and closed accounts. It is assumed that open accounts usually weigh more than closed accounts and obviously, older accounts are better.

The most common age-related variable that most credit advisors will talk about is the average age of accounts. It is commonly believed that the average age of accounts may be the most powerful factor in the age category.

As we will see in the examples below, in working with tradelines, most people underestimate how difficult it is to significantly affect an average, especially when there are multiple accounts already in your credit history.

Calculating Your Average Age of Accounts

For illustration, here are a few hypothetical examples of how to calculate the average age of accounts and how new tradeline data gets factored in.

Example 1: Thin File for Simple Illustration

Card 1: 0.5 years old
Card 2: 0.5 years old
Card 3: 1.5 years old

The average age of accounts in this example is 0.83 years. The way you figure that out is to add up the total number of years and divide that by the total number of accounts. (0.5 + 0.5 + 1.5 = 2.5 years total, then divide by 3 = 0.83 years average.)

If your goal was to get the average age of accounts up to 2 years old by adding one tradeline, the new tradeline would have to be about 6 years old. (0.5 + 0.5 + 1.5 + 6 = 8.5 total years divided by 4 total accounts = 2.1 average age of accounts.)

Notice how much older the new tradeline had to be in order to simply get the average age of accounts to be 2 years old for a very thin file. Many people would not have guessed that they would need such an old card just to get the average to be 2 years old.

To illustrate this point, if someone were to only add a 4-year-old tradeline to this mix, the average age of accounts would then only be 1.6 years, and this is assuming a person only has 3 revolving accounts (opened or closed) in their credit file, which is very rare.

The more accounts a person has, the less impact a single tradeline will have due to the simple mathematics of calculating an average.

Example 2: Established Credit File With Multiple Open & Closed Accounts

The more accounts there are in your credit file, the more difficult it will be to affect the average age of accounts.

Card 1: 4 years old
Card 2: 8 years old
Card 3: 6 years old
Card 4: 4 years old
Card 5: 7 years old
Card 6: 7 years old (closed account)
Card 7: 15 years old (closed account)
Card 8: 13 years old (closed account)
Card 9: 9 years old (closed account)
Card 10: 12 years old (closed account)

The average age of accounts here is 8.5 years old. The way you calculate that is to add up the total number of years and divide that by the total number of accounts. (4 + 8 + 6 + 4 + 7 + 7 + 15 + 13 + 9 + 12 = 85 years, divided by 10 accounts = 8.5 years average age of accounts.)

Let’s say hypothetically that the person’s goal is to get their average age of accounts up to 10 years old by adding a single tradeline.

Please stop and take a moment to guess how many years old a new tradeline would need to be in order to make the average age of accounts 10 years in this example.

The Answer:

They would need to add a tradeline that is 25 years old in order to get the average age of accounts to be 10 years. (4 + 8 + 6 + 4 + 7 + 7 + 15 + 13 + 9 + 12 + 25 = 110 total years divided by 11 total accounts = 10 year average age of accounts.)

Notice how huge of a jump in years is needed in order to change someone’s average if they already have a lot of accounts in their credit file, even if some of them are closed accounts. Most people underestimate how difficult it is to really change an average and even most “professionals” (who are usually just commissioned salespeople) underestimate how these numbers actually work out.

Our tradeline calculator can help you figure out how buying tradelines could affect your credit.

Until you actually do the math yourself, do not just blindly trust what someone suggests for you. To easily calculate your own average age of accounts and utilization ratios and see how those variables change when you add seasoned tradelines, try our Tradeline Calculator.

A Common Mistake People Make When Buying Tradelines

It is easy to see how in the second example above, if this person did not do the math, they might purchase the wrong tradeline and be disappointed.

Let’s say they purchased a tradeline that is 18 years old with a $20,000 credit limit that cost $1,000. They might just assume that since it was an expensive tradeline with a lot of age and a high limit that it should “obviously” be super powerful and they should definitely see positive results.

However, in reality, the 18-year-old card would only increase the average age of accounts to 9.4 years, and it is very possible that increasing one’s average age of accounts from 8.5 years to 9.4 years may not have very much of an impact on their overall credit picture.

As you can imagine, this person could easily be very disappointed in their results for the reason that they simply did not do the math and were not aware of how to choose the best tradeline for their credit file.

As another example, what if this person were to choose to purchase a tradeline that is 7 years old with a $30,000 limit? On the surface, that might look like a decent tradeline to buy, but it would actually decrease their average age of accounts and consequently, it could even hurt their credit score, even though that tradeline might have a $750-$1,000 price tag.

We illustrate this to show that not knowing how tradelines work can actually hurt your credit and be a complete waste of money. For this reason, we believe education is the best service we can offer. Make sure to read our list of common mistakes made when buying tradelines to be aware of other pitfalls to avoid.

Although credit reports can be complex, it’s important to have a good understanding of your file before choosing which tradelines to buy. Image by Jack Moreh.

Conclusions on Choosing the Best Authorized User Tradelines

Authorized user tradelines can be very effective for many people, assuming that they added superior tradelines to what they already have in their credit file. On the other hand, since many people are not educated about how the system works, it can be easy for people to choose the wrong tradelines that do not help them very much.

Compounding the confusion, it is very difficult to find the best tradeline company to work with. We believe that educating our customers is the best thing that we can do for our community and offering affordable tradelines makes them more accessible to the people who need them most.

Use our Tradeline Calculator to help you understand the key factors relating to the tradelines in your credit file and to help point you in the right direction for your next tradeline. For even more educational resources on tradelines, visit our blog.

Read more: tradelinesupply.com

Collection Accounts on Your Credit Report: The Ultimate Guide

VantageScore vs. FICO Score: What’s the Difference?

How to Increase Your Credit Limit

How to Get an 850 Credit Score

What Are Credit Scores and How Can Tradelines Help?

Business Credit Starts With Personal Tradelines

How to Choose a Tradeline: A Buyer’s Guide

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