The vast majority of lenders use your FICO credit score to evaluate your credit risk as a consumer when they are deciding whether or not to extend credit to you. And yet, historically, it has been costly for consumers to access their own FICO scores.
Popular websites such as Credit Karma and Credit Sesame offer free credit scores, but the scores provided are usually VantageScores, not FICO credit scores.
Knowing your VantageScore is still valuable information, but it is not directly tied to your FICO Score, so it is less useful when it comes to preparing to apply for credit. While it is often true that a consumer’s FICO score is similar to their VantageScore, in some cases, they may be vastly different, especially depending on which credit scoring models are used and which credit bureaus are providing the credit report information.
If you need to check your FICO score, where can you do so without paying a fee to access it?
Here are some of the best places to get your FICO score for free.
Your Credit Card Issuer
Several major credit card issuers now offer consumers the ability to check their FICO scores for free.
Discover Bank
Discover offers a free way to check your FICO score with their Credit Scorecard program. Even consumers who do not have a relationship with Discover Bank can freely use this feature.
Experian provides the credit report data that is used to calculate your FICO score. Your credit score updates once every 30 days and Discover notifies you when it is time to check your new FICO score.
In addition, Discover’s FICO Credit Scorecard keeps track of your credit score history so you can see how it changes from month to month.
The Credit Scorecard also provides a summary of what is going on with each of the five credit score factors that are influencing your FICO score: your payment history, credit utilization, length of credit history, mix of credit, and new credit (e.g. inquiries). You can find educational information about credit scores on the website as well.
To access your FICO score with Discover’s FICO Credit Scorecard, either visit their website or use the bank’s mobile app.
Bank of America
Bank of America is another widely used bank that offers free FICO scores to consumers. However, to enroll in this program, you must be a Bank of America credit card customer.
Much like Discover’s offering that we described above, Bank of America’s FICO Score Program provides customers not only with their FICO scores but also information on the major factors that influence your credit score, your month-to-month credit score history, and education about how to achieve and maintain good credit.
On top of this, Bank of America also compares your credit score to the national average.
Bank of America customers can view their FICO score for free on the company’s website or mobile app.
Citibank
Consumers who have Citibank branded credit cards can obtain their FICO score for free from Citi.
Citi states on their website, “We think it’s important to provide our cardmembers with free access to information that will help them understand and stay on top of their credit status. That’s why we’re providing you with your FICO® Score and information to help you understand it.”
Your FICO score from Citibank is determined using information from your Equifax credit report and the FICO Bankcard Score 8 credit scoring model. Unlike the standard version of FICO 8 that you may be used to seeing, which ranges from 300 to 850, the bank card model used by Citi ranges from 250 to 900. It is updated once a month.
You can find more information on Citi’s free FICO score program on their website.
American Express
Recently, American Express started providing access to free FICO scores to consumers who have American Express credit cards.
The bank uses the standard version of FICO 8, so the credit score range spans from 300 to 850. Experian provides the credit report data used to calculate your score.
As with the other free FICO score programs, you also get to see how your FICO score changes over time and you receive a summary of the factors affecting your credit score.
American Express credit cardholders can see their FICO scores in their online account or on their monthly statement.
Those who do not have credit cards with American Express can get their TransUnion VantageScore for free through the company’s MyCredit Guide program, but this does not include FICO scores.
Barclays
FICO scores from TransUnion are available to all Barclays credit card customers through the bank’s online banking system.
Once you have had your Barclays card for three months, you can see a chart of your FICO score history over the time you have had an account open with Barclays, according to SmartAsset.
Plus, Barclays will send you alerts via email if your credit score changes, including an explanation of why your score has changed.
Wells Fargo
Wells Fargo account holders who use their online banking platform can view their FICO credit score within their online account.
Additional features include your credit score history, information on your credit score factors, and personalized credit tips from Wells Fargo.
According to the bank, they offer your FICO score for free in order to “support your awareness and understanding of FICO® Credit Scores and how they may influence the credit that’s available to you.”
The FICO score you get through Wells Fargo is calculated using Experian credit report data and is updated once a month.
Experian
Experian is the only major credit bureau that offers consumers their FICO 8 scores for free along with their Experian credit reports.
In addition, Experian offers an alternative credit data program called Experian Boost, which can add positive payment history from certain bills to your credit report, such as utilities and Netflix.
Sign up on Experian’s website to start using these free services.
Your Local Bank or Credit Union
Not all banks and credit unions offer customers the ability to check their FICO scores for free, but it is worth asking if you do not have access to the previous options. If your local bank or credit union does not offer free FICO scores, they may be able to help direct you toward somewhere that does.
Will Checking Your FICO Score Hurt Your Credit Score?
Although this is a common concern, checking your own credit score should never hurt your credit.
This credit myth likely arises from the fact that hard inquiries on your credit report can have a small negative effect on your score.
However, hard credit inquiries only happen when you are actively seeking credit and a lender has to pull your credit report to decide whether or not to loan you money.
All other credit checks, including those you conduct yourself for educational purposes, are considered to be soft inquiries, which do not affect your score at all.
Final Thoughts on How to Get Your FICO Score for Free
If you want to be able to see your FICO score for free, there are many options available to you, especially if you have credit card accounts with major banks such as those listed above.
FICO also has a program called FICO Score Open Access that aims to enhance consumer access to FICO scores and educate consumers about the topic. FICO has a list of additional lenders and credit and financial counseling organizations that participate in this program, which you can browse in case you do not have any accounts with the banks mentioned here.
Keep in mind that lenders use many different versions of FICO scores, including older generations and versions that are specific to certain industries. That means that when you check your FICO score for free, it is not guaranteed to be the same exact FICO score that a lender will use when you apply for credit.
When you check your FICO score using one or more of the methods in this article, take note of which credit bureau is supplying the information as well as which FICO score version is being used to calculate the result so that there is no confusion if you see a different FICO score somewhere else.
Finally, remember that you can also get your VantageScore for free in many places as well. While it’s not the same as your FICO score, it can still provide educational value as it uses the same general principles to calculate your score.
Let us know if this article helped you find a way to get your FICO score for free by commenting below!
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.
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!
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.
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!
FICO, the company behind the creation of the original FICO credit score and its many subsequent iterations, has announced the latest model in their line of credit scoring algorithms: the FICO Score 10 and the FICO Score 10 T. The “T” in the latter scoring model stands for “trended,” which reflects the incorporation of trended data over time into the algorithm.
Thanks to not only the trended data but also a few other major changes, the new scoring models are claimed to be superior to all previous FICO scores.
Although the majority of consumers are not likely to see a dramatic change in their credit scores, some groups of consumers may experience more extreme shifts. Ultimately, the new FICO scores are predicted to widen the gap between consumers with good credit versus those with bad credit.
However, none of that matters until FICO 10 and 10 T actually start being used, which could still be a few years away.
Keep reading to get all the facts on FICO 10, including what makes it different from previous FICO score versions, the impact it will have on credit scores, and when we will start to see lenders adopting it. Most importantly, we’ll tell you how to get a good credit score with FICO 10.
Why Did FICO Come Out With a New Credit Scoring Model?
The whole point of a credit score is to communicate a consumer’s level of credit risk to lenders so that lenders can make less risky decisions when granting credit. Lenders want to avoid extending credit to borrowers who are likely to default on a loan because defaults represent losses for the company.
So, the more accurate a credit scoring model is at predicting consumer credit risk, the more useful it is to lenders. With a predictive credit scoring model, lenders can make more informed lending decisions, which helps their bottom line.
For this reason, the goal of each new credit score is to make it better than the last version at predicting credit risk, and that is exactly what FICO 10 is designed to do.
Consumer Debt Is on the Rise—But So Are Credit Scores
According to The Balance, consumer debt has increased to record levels, and yet the average credit score in the United States has also increased to 706 as of September 2019. This can be attributed partly to economic conditions over time, but there is another major factor that has the banks worried.
The national average FICO score has been on the rise for the past decade and it surpassed the 700 mark in 2018.
It has now been 12 years since the Great Recession of 2008, which means almost all of the delinquencies and derogatory marks on consumers’ credit reports from that period of financial hardship have been removed from their records. Therefore, creditors can no longer see how consumers handled the recession and whether they were able to pay all of their bills when the economy went south.
Couple this with the fear of another possible economic recession on the horizon, and you can understand why lenders have started to feel concerned that delinquencies and defaults may soon begin to rise to a level that is not reflected in consumers’ high credit scores.
Because of these economic factors, the credit scoring system needed an overhaul that would take into account the changing economic climate as well as changing consumer behavior and allow for better predictions of credit risk and default rates.
FICO 10: More Accurate Predictions of Credit Risk
FICO predicts that FICO 10 will lower defaults on auto loans by 9% and defaults on mortgages by 17%.
Due to the changes made to the scoring model that we discussed above, especially the inclusion of trended data for the FICO score 10 T, FICO claims that the new scores perform better than all previous FICO scores by substantially lowering consumer default rates.
Here’s what else FICO has to say about their new products:
“By adopting the FICO® Score 10 Suite, a lender could reduce the number of defaults in their portfolio by as much as ten percent among newly originated bankcards and nine percent among newly originated auto loans, compared to using FICO® Score 9. The reduction in defaults is even higher for newly originated mortgage loans, at 17 percent compared to the version of the FICO Score used in that industry. These improvements in predictive power can help lenders safely avoid unexpected credit risk and better control default rates, while making more competitive credit offers to more consumers.”
How Is FICO 10 Different Than Previous FICO Scores?
Although FICO routinely updates their credit scoring algorithms every five years or so, this will be the first time that they are releasing two different versions of the same general scoring model: FICO 10 T, which uses trended data; and FICO 10, which does not use trended data.
Both FICO 10 and FICO 10 T will be drastically different than the previous FICO score, FICO 9. FICO 9 was designed to be very forgiving to consumers, which led many to believe that it produced credit scores that were higher than they should have been.
With FICO 9, for example, medical collections were given less weight than other types of collections, which was a benefit to consumers struggling with medical debt.
Furthermore, FICO 9 completely ignored paid collection accounts, meaning that if you had a collection on your credit report but then paid the balance, it would no longer affect your credit score. Many felt that this change contributed to FICO 9 overestimating the creditworthiness of consumers, which in turn led to the scoring model not being accepted by many industries.
In contrast, the FICO 10 scores represent a swing back in the opposite direction. It is designed to be less lenient toward consumers with risky credit behaviors in order to avoid understating consumers’ credit risk. In that sense, it is probably more similar to FICO 8 than to FICO 9. However, FICO 10 also rewards consumers who have successfully managed their credit.
To accomplish this, FICO made some significant changes in creating their latest set of credit scoring algorithms.
Trended Data
The new FICO 10 T score is the first FICO score to look at trended credit data.
The FICO 10 T score will incorporate trended data, which means that it will not just consider your credit profile as a “snapshot” in time, but rather, it will take into account your credit behavior over the previous 24 to 30 months and how your credit profile has changed in that time.
VantageScore 4.0, a competing credit scoring model, has been using trended data since it debuted in 2017. Now, FICO is following suit with their 10 T score.
Because of the more extensive temporal data set FICO 10 T has to draw from, it is even more predictive of a borrower’s credit risk than the basic FICO 10 score, which can only see a “snapshot” of your credit report at a given point in time.
For consumers, the trended data factor is especially significant for the credit utilization portion of your credit score. Of course, credit scores already looked at your payment history from the past seven to 10 years, but until now, they only looked at your credit utilization ratios at a given point in time.
This means that with most credit scoring models, even if you max out your credit cards one month and your credit score suffers as a result, as long as you pay down your cards again by the next month, your score can still bounce right back to where it was before you maxed out the card.
With FICO score 10 T, however, it won’t be so easy to recover from high balances, because a record of being maxed out could stick around for the next 24 to 30 months.
In addition, if your balances have been climbing higher over the last two years or if you have been seeking credit more aggressively, you could be penalized by FICO 10 T, because this kind of behavior indicates a higher risk of you defaulting in the future.
On the other hand, if you have been managing your credit well and your debt levels have been decreasing over the past two years, you will be rewarded for that behavior.
Personal loans from online lenders have exploded in popularity, but it’s best to avoid them if you want to get a high FICO 10 credit score.
Personal Loans Will Be Penalized
The vice president of scores and analytics at FICO, Joanne Gaskin, has said that the most significant change to the scoring algorithm is the way it treats personal loans.
Personal loans are growing faster than any other type of consumer debt, even credit cards. Consumers are turning to personal loans to consolidate credit card debt more frequently than in the past, and the proliferation of financial technology companies has made personal loans easier to qualify for and more accessible.
With older FICO models, personal loans are treated the same as any other installment loan. Since the balances of installment accounts don’t affect credit scores as much as the utilization ratios of your revolving accounts, with most scoring models, taking out a personal loan to consolidate credit card debt (essentially converting revolving debt into installment debt) would benefit a consumer’s credit score.
However, many consumers who take out personal loans to pay off revolving debt don’t change the spending habits that got them into debt in the first place. Consequently, after getting a personal loan and paying down their credit cards, they may run up their cards again and find themselves even deeper in debt.
According to FICO, the credit risk of such consumers is higher than you would think based on their credit scores using previous FICO models. To account for this, FICO 10 is treating personal loans as their own category of credit accounts and is potentially penalizing consumers for taking out personal loans.
With FICO 10 T, recent missed payments will matter even more than they already do with other FICO score versions.
Therefore, with FICO 10, the strategy of consolidating credit card debt with a personal loan might not help your credit score as much as you hope and might even hurt it. However, the negative impact of taking out a personal loan can be mitigated by steadily working to reduce your overall debt level.
On the other hand, if your overall debt load stays the same or continues to increase after you take out a personal loan, that could hurt your credit score because it shows lenders that you are getting deeper into debt and not managing your credit well.
Recent Missed Payments Will Be Penalized More Heavily
Payment history has always been the most important part of a FICO credit score, but it is even more important with FICO 10 T, the trended data score.
Using historical data, it can assign late and missed payments even more weight based on your behavior in the past 24 months. For example, if you’ve been getting progressively farther behind on payments over time, the negative impact on your credit score could be even greater than it would with a previous FICO score.
If you have delinquencies that are at least a year old, though, then those older negative marks on your credit report won’t hurt your score as much, according to MSN.
How Will the FICO 10 Scoring Model Affect Credit Scores?
Overall, it is predicted that the new FICO 10 scoring models will have a polarizing effect on consumers’ credit scores, which means that some consumers who have bad credit scores may see them drop even further, while those who have good credit scores because they are on the right track may be rewarded with even higher scores.
40 million consumers are likely to experience a credit score drop of 20 or more points with FICO 10 compared to previous models. This could push some consumers over the edge into a lower credit rating category.
FICO has estimated that approximately 100 million consumers will probably experience minor changes of less than 20 points to their scores. The company also estimates that about 40 million consumers will see their credit scores drop by 20 or more points, while another 40 million could see their scores increase by the same amount.
You are likely to see a credit score drop if you took out a personal loan to consolidate debt but then kept accruing more debt instead of paying it off, or if you have credit card debt that you are not paying down.
You are most likely to see a credit score increase if you have been penalized for having high balances from time to time, since the temporal data from FICO 10 T will help to average out the peaks in your utilization rate.
While a decrease of 20 points in your credit score isn’t catastrophic, it could be enough to make a difference in your chances of being approved for credit or the interest rates you could qualify for. This is especially true for those whose credit scores sit near the lower border of a credit score category.
For example, if someone with a credit score of 595 with FICO 8 is considered to have fair credit. If FICO 10 gave them a credit score that is 20 points lower, their credit score would be 575, which is considered bad credit. That could very well make or break your chances of getting approved for a loan or a credit card.
On the other hand, the inverse is true for those who stand to gain 20 points. If a 20 point increase pushes a consumer over the edge from fair credit to good credit, for example, this could certainly be beneficial when applying for credit.
It’s estimated that 80 million consumers will see a significant change in their credit scores with FICO 10, which may move them into different credit score ranges.
Less Severe Score Fluctuations
As you may recall from How to Choose a Tradeline, the more data there is contributing to an average, the more difficult it is to affect that average.
Since FICO 10 T looks at your credit utilization for an extended period of time instead of just the current month, it is likely that your credit score will not change as drastically from month to month based on your utilization ratios at the time.
In other words, your utilization data from the past 24 to 30 months will have a stabilizing effect on your score that will protect it from being heavily penalized if you occasionally have high balances. For example, if you spend extra on your credit cards in December to prepare for the holidays, your score that month won’t be hurt as much as it would without the trended data (as long as you pay it off quickly).
Greater Emphasis on Trends and Recent Data
FICO 10 T will especially reward consumers who have a trend of improving their credit over time.
The inclusion of trended data with FICO Score 10 T and extra emphasis on recent data means that your credit score is not based solely on what your accounts look like today, but instead, it will give more importance to whether your credit is getting better or getting worse.
Hypothetically, it’s possible that two consumers with the same amount of debt and derogatory items could have different credit scores based on the trend in their debt levels.
If one consumer has $10,000 of credit card debt, but they have been making progress on paying that down from a starting point of $20,000 of debt, then their credit score would be helped by FICO 10 T because their debt level is demonstrating a trend of improvement over time.
If the other consumer also has $10,000 of credit card debt, but they used to only have $1,000 of revolving debt, that trend shows that they are getting deeper into debt, and their FICO 10 score would be hurt by that pattern of increasing debt.
A Polarizing Effect on Credit Scores
One of the major effects of FICO 10 is that it is likely going to polarize the pool of consumers’ credit scores. In other words, those near the top of the credit score range will get even higher, while those with low credit scores will sink even lower along the scale.
According to CNBC, consumers with scores of lower than 600 will experience the largest reductions in their credit scores with FICO 10. Those with scores of 670 and above could possibly gain up to 20 points.
This creates a distribution of credit scores that is more concentrated at the two extremes, as opposed to most consumers’ credit scores being concentrated around the average.
Unfortunately, that means the negative effects of the new FICO scores will disproportionately impact consumers who are already struggling with debt. This will make it even harder for consumers to get out of debt and may force them to seek out costly, predatory loans, which only accelerates the downward spiral of debt.
This perpetuation of inequality in the credit scoring system is not new, but it seems that FICO 10 will only serve to increase credit inequality rather than improve it.
Ultimately, FICO’s clients are the banks, and their products are designed to give banks the upper hand, not consumers.
When Will the New FICO Score Be Rolled Out?
By widening the divide between consumers with good credit and those with bad credit, it seems that FICO 10 will exacerbate credit inequality.
According to FICO, the FICO Score 10 Suite of products will be available in the summer of 2020. The vice president of scores and predictive analytics at FICO, Dave Shellenberger, told The Balance that Equifax will be adopting the new score shortly thereafter.
As to when lenders will actually start to use the new credit scoring system, that is a different question.
Lenders Are Slow to Adapt to New Credit Scoring Systems
The financial industry adapts very slowly to systemic changes. As we discussed in “Do Tradelines Still Work in 2020?”, there are many, many different versions of FICO, and the majority of lenders are still using versions of the score that are years or even decades old.
Before FICO 10, the latest version had been FICO 9, which has largely gone unused by lenders.
FICO 8 is the credit scoring model that is currently being used by the three major credit bureaus and it is also the most widely used model among lenders today. FICO 8 debuted in 2009, which means it has now been around for over a decade.
There are certain industries that rely heavily on FICO score versions that are even older than FICO 8. In the mortgage industry, the most popular FICO scores are versions 2, 4, and 5, the earliest of which debuted in the early 1990s. Auto lenders may use FICO scores 2, 4, 5, or 8, while credit card issuers use models 2, 3, 4, 5, and 8.
Furthermore, many industries and even some large lenders have their own proprietary FICO scoring models which have been customized for that particular institution and the consumer base they serve.
Lenders have amassed huge troves of data based on a specific credit scoring model. Having reliable data is crucial to minimizing risk during the underwriting process. If lenders were to change to a new scoring model, all of the credit scoring information they have collected so far would no longer be applicable, since it was calculated using a different algorithm.
It is likely that the FICO 10 T score will take longer to implement than the basic FICO 10 score because FICO 10 T will require businesses to train employees to use a new set of reason codes.
They would essentially be starting from scratch, which would mean taking on more risk until they have tested the new model for long enough to understand how it works for their businesses. Because of this, lenders are often reluctant to upgrade to a newer scoring model and slow to implement it.
Therefore, we can make an educated guess that it will most likely take at least a few years for FICO 10 to gain traction with lenders on a large scale. According to Shellenberger of FICO, it may take “up to two years” before lenders start using the new model, although based on past examples, it seems likely that it could take a lot longer than that.
FICO 10 T Will Be More Challenging for Lenders to Adopt
According to FICO, the standard FICO 10 score uses the same “reason codes” as older FICO scores. Reason codes, also referred to as “adverse action codes,” are the codes that lenders must provide if they have rejected your application for credit based on information from your credit report. These codes usually consist of a number and a brief statement of something that is impacting your score in a negative way, such as revolving account balances that are too high compared to your revolving credit limit.
Because FICO 10 shares the same reason codes with previous versions of FICO scores, this means it will be compatible with lenders’ current systems, at least with regard to reason codes.
In contrast, FICO 10 T comes with a new set of reason codes, which means it will be a more extensive undertaking for banks to implement the new score and train employees on how to use it.
For this reason, it seems likely that the basic version FICO 10 may see widespread use among lenders before FICO 10 T does.
How to Get a Good FICO 10 Credit Score
Although some significant changes have been made to the FICO 10 credit scoring products, the overall principles of managing credit remain the same. Most importantly, make all of your payments on time, every time, and try to keep your credit utilization low.
However, there are a few specific points to keep in mind if you want to get a good credit score with FICO 10.
Think twice about taking out a personal loan
Since personal loans will be more heavily penalized with FICO 10 scores, you’ll want to avoid taking out a personal loan unless it’s absolutely necessary. Instead of relying on personal loans to support your spending, try to save up for large purchases in advance, and start funneling some cash from each paycheck into an emergency fund in case you run into financial hardship.
If you do end up needing to use a personal loan, try to pay it down as quickly as you can. In addition, don’t run up the balances on your revolving accounts again, because the FICO 10 T algorithm does not reward this behavior, and your credit score will reflect that.
Consider setting up automatic payments for all of your accounts so that you never accidentally miss a payment.
Never miss a payment
Avoiding late or missed payments is of the utmost importance with any credit score, but it is even more important with the new FICO scoring system. Late and missed payments may be assigned more weight based on your recent credit history, especially missed payments that occurred within the past two years.
To avoid missing any payments, set up all of your accounts to automatically deduct at least the minimum payment from your bank account before your due date each month. Also, it’s a good idea to get into the habit of checking your accounts regularly to make sure there haven’t been any errors or issues with processing your automatic payments.
If you do accidentally miss a payment, pay the bill as soon as you notice and consider asking your lender to waive the late fee. If you manage to catch up before 30 days have gone by, then you can avoid getting a derogatory item added to your credit report.
In the event that you find yourself with a 30-day late (or worse) on your credit report, then you will need to be extra vigilant about making payments on time for at least the next one to two years if you want your score to recover.
Pay off your credit cards in full every month
Paying off your credit cards in full is always a good idea in general because that way, you can avoid wasting money on interest fees. In addition, paying off your full balance each month prevents your credit utilization from increasing from month to month, as opposed to carrying over a balance and then adding more to it each month.
With trended data playing a large role in your FICO 10 T score, consistency is key, and paying your bills in full every time will help boost your score.
If you want to get a good credit score with FICO 10 and FICO 10 T, try to keep your revolving debt low by paying off your credit cards in full every month.
Lower your credit utilization ratios
With FICO 10 T, it will be more important than ever to be vigilant about maintaining a low credit utilization ratio. Since the trended scoring model accounts for patterns in your credit utilization over the past 24 months, it won’t be so easy to get away with maxing out your credit cards one month and then quickly paying the balance down to improve your score again the next month.
High credit utilization at any point in the past two years could be factored into your credit score, especially if your utilization has been increasing over time.
For this reason, if your credit is being scored with the FICO 10 T model, you’ll get the best results if your credit utilization has been consistently low or if it has shown a pattern of decreasing over time.
However, just because you pay off your credit card in full every month doesn’t mean it will report a zero balance. The balance that reports to the credit bureaus is the balance that you have at the end of your statement period. If your balance happens to be high on that date, then it could negatively affect your score, even if you pay off the balance soon after.
One way to get around this is to pre-pay your credit card bill before your due date and your statement closing date. That way, the balance will be low when the card reports to the credit bureaus, which is better for your credit score.
Another helpful credit hack is to spread out multiple smaller payments throughout the month so that the balance never climbs too high to begin with.
Requesting a credit line increase can be an easy way to improve your utilization rate, but this method should be used with caution if you think it might encourage you to rack up more debt.
Increase your credit limit
One way to easily lower your utilization rate is to increase your credit limit. Spending $1,000 on a card with a credit limit of $5,000 is a lot better than spending the same amount on a card with a credit limit of $2,000.
Increasing your credit limit might be easier than you think. It could be as simple as calling up your card issuer on the phone or applying for a credit line increase online. Most people who ask for a higher credit limit get approved, according to creditcards.com.
However, this strategy is not encouraged for consumers who may be tempted by the higher credit limit to spend even more on the card.
For tips on how to get a larger credit limit, as well as some pitfalls to watch out for before requesting an increase, check out “How to Increase Your Credit Limit.”
Work to improve your credit health over time
With FICO score 10 T including more information about your credit history over the past 24 months, it will be important to demonstrate an improvement in your credit over time. Consumers who have been working to manage their credit responsibly and who have reduced their amount of revolving debt over time will be rewarded.
On the other hand, those whose credit health has been declining due to increasing debt levels or a series of missed payments will see their credit scores take a dive.
Will the New FICO 10 Score Affect the Tradeline Industry?
First, remember that it’s likely that it’s going to take at least a few years for FICO 10 to be widely adopted by lenders (if lenders choose to use it in the first place, which they may not), which means that nothing is changing for the tradeline industry in the near future.
Secondly, many lenders may choose to adopt only FICO 10 and not FICO 10 T because it will be technically easier to implement. For lenders using FICO 10 without the trended data, there is no change to how authorized user tradelines work.
However, things get more interesting when considering the impact of FICO 10 T on buyers and sellers of tradelines. Until FICO 10 T is adopted by major lenders, we can only speculate as to the changes that will result, but here is one possibility.
What If FICO 10 T Reveals a Tradeline’s Balance History?
One concern that consumers may have is that FICO 10 T will expose a tradeline’s previous high balance if it had one at any point during the past 24 to 30 months. That may be true, but we also know that FICO 10 T places a lot of importance not just on the numbers themselves, but on how they change over time.
All of the tradelines on our tradeline list are guaranteed to have a utilization ratio of 15% or lower. If a tradeline had a higher balance at some point in the past two years or so, then it would show a trend of the balance decreasing, since the balance would have been brought down to under 15% in order to participate in the tradeline program.
FICO 10 T rewards downward trends in utilization, so it seems that authorized user tradelines would still provide value even if higher balances can be seen in the past.
If a tradeline has not had a high balance in the past two years, then that means it will show a pattern of consistently low utilization, which is also beneficial.
Conclusion: What Does the New FICO 10 Credit Score Mean for Consumers?
A lot of speculation and bold claims have been circulating about the new FICO scores, FICO 10 and FICO 10 T. Naturally, consumers and tradeline sellers alike are concerned with the question of how these new scores might affect authorized user tradelines.
It is true that FICO has made some significant changes to their latest credit scoring model, and it’s also likely that some consumers may experience marked increases or decreases in their credit scores compared to previous FICO scoring models. Fortunately, however, there is no need to panic.
Follow the general guidelines of good credit to get a high score with any credit scoring model.
First, let’s remember that FICO 10 is not in use yet, and it’s probably going to take a few years or more for the majority of lenders to adopt it. In addition, the scoring model that people are most concerned about, FICO 10 T, will take even longer than FICO 10 to reach mainstream popularity since it requires lenders to learn how to start using a new set of reason codes.
For this reason, consumers do not need to worry about lenders seeing the past two years of their credit histories just yet. However, knowing that widespread use of trended data may be on the horizon, you may want to start preparing your credit now. That way, when trended data credit scores become more popular, your credit will be strong and ready to withstand the changes.
To achieve a high credit score with FICO 10 and FICO 10 T, avoid taking out personal loans if you can, as they will be penalized more heavily than in the past. It’s also important to demonstrate either an improvement in your credit over time or consistently good credit habits, which will be rewarded.
Aside from these special considerations, FICO 10 and FICO 10 T still rely primarily on the same credit score factors you are already familiar with: payment history, credit utilization, length of credit history, credit mix, and new credit. While the peripheral details of different scoring models may vary, the core components always remain the same.
Ultimately, if you work on developing good credit practices in these general areas, your credit will be in great shape no matter which scoring model is used.
Here’s a number that may shock you: about one in five American adults do not have a credit score.
About 26 million consumers are what the Consumer Financial Protection Bureau calls “credit invisible,” which means they don’t have any credit history. Another 19 million consumers have credit records that cannot be scored by a commonly used credit scoring model.
Added together, that means 45 million consumers in our country—nearly one in five adults—lack a credit score.
Without a credit score or a sufficient credit record, it can be extremely difficult to navigate modern society. Credit scores indicate a consumer’s credit risk and therefore serve as the basis for most lending decisions, along with income. It can be difficult or even impossible to obtain credit without one.
Credit scores may also be used by landlords to evaluate prospective tenants, by insurance providers to determine rates, and by utility companies when assessing deposits. Employers may pull prospective employees’ credit reports in order to make hiring decisions.
Therefore, consumers who are credit invisible or credit unscorable may face serious challenges in obtaining credit, housing, insurance, utilities, and employment.
Unfortunately, but perhaps not surprisingly, the problem of credit invisibility is concentrated among certain demographics of consumers.
In this article, we’ll address who is most impacted by credit invisibility and the consequences of lacking credit history. In addition, we will discuss potential solutions to this issue and explain how tradelines can help consumers become credit visible.
Defining Credit Invisibility and Unscorability
The Consumer Financial Protection Bureau published a report on credit invisibility in 2015 in which the Bureau determined how many Americans are lacking credit histories.
For the report, they analyzed a nationally representative data set containing the anonymized credit reports of nearly 5 million consumers. The CFPB purchased these anonymized credit reports from one of the major credit bureaus.
By subtracting the number of credit records in a census tract from the total number of adults living in the census tract, they were able to estimate the number of credit invisible consumers in each census tract.
Nearly 20% of consumers in the U.S. do not have a credit score due to a lack of credit history.
Overall, the CFPB found that more than 80% of the adult population in the United States (188.6 million consumers) have credit records with at least one of the major credit bureaus that contain enough information to be scored by the commercially available credit scoring model used for the CFPB’s research.
In contrast, 8.3% of adults have credit records that cannot generate a credit score using this credit scoring model. This group of 19.4 million consumers is divided about equally between consumers whose credit reports do not contain enough information to be scored (“insufficient unscored”) and consumers whose credit history is not recent enough to be scored (“stale unscored”).
This leaves 11% of the adult population who are completely credit invisible, meaning they do not have a credit record at all with any of the major credit reporting agencies.
What Are the Consequences of Being Credit Invisible or Unscorable?
The credit reporting agencies and credit scoring companies have been extremely successful in marketing their products to other industries. As a result, credit checks are now a standard procedure in many essential aspects of modern life. This means that being credit invisible can have devastating consequences for consumers.
Credit May Be Unattainable or Very Expensive
The “credit catch-22” is that in order to qualify for credit, you must already have a history of using credit. Lenders want to see a pattern of responsible borrowing before they take the risk of extending you credit.
Therefore, the obvious problem with having no credit history or minimal credit history is that it bars access to mainstream credit products such as loans and credit cards.
This lack of access to conventional credit options leads credit-invisible and unscored consumers to turn to “alternative financial service providers” (AFSPs), which include businesses such as payday lenders, pawn shops, and check-cashing stores. Unfortunately, services provided by AFSPs typically come with much higher costs than traditional credit products offered by banks.
Consumers who are credit invisible may turn to high-cost AFSPs such as payday lenders if they cannot access traditional credit products.
As most consumers do, those who are credit invisible or unscorable have legitimate credit needs, but unfortunately, their options are usually limited to high-cost AFSPs.
Housing May Be Difficult to Find and More Costly
Renting a home almost always involves a credit check for the prospective tenants. Often, landlords will simply reject applicants who do not have a credit record.
Some landlords may accept tenants who don’t have any credit history, but since it’s financially risky for them, they will likely charge more for the deposit or ask the tenant to prepay multiple months of rent.
Utility Providers and Wireless Carriers May Require a Deposit
Providers of utilities such as gas, electricity, water, trash, internet, and phone service also typically conduct credit inquiries on consumers. Knowing your credit score helps these companies judge how likely they think you are to pay your bills on time.
If you don’t have a credit score, they can’t make that judgment with confidence. To hedge their bets, the utility companies may ask you to pay a larger deposit upfront.
Insurance Could Be More Expensive
Credit scores are often considered as a factor when insurance companies decide on your rates for auto insurance as well as homeowner’s insurance, according to credit.com. If they can’t use a credit score to help determine your rate, they may end up charging you more.
Who Is Most Likely to Be Credit Invisible or Unscorable?
As you may remember if you’ve read our article on the topic of equal credit opportunity, the likelihood of being credit invisible isn’t the same for all consumers. In fact, there are strong correlations between credit invisibility and race, age, geography, and income.
Black and Hispanic Consumers Are More Likely to Lack Credit History
The CFPB discovered that consumers who are Black and Hispanic are more likely to be credit invisible or unscorable.
Compared to consumers who are White or Asian, Black and Hispanic consumers are more likely to be credit invisible or to have credit records that cannot be scored, according to the CFPB’s report.
Only 9% of White and Asian consumers are credit invisible, compared to about 15% of Black and Hispanic consumers. Similarly, only 7% of White adults have unscorable credit records, in comparison to 13% of Black adults and 12% of Hispanic adults.
The CFPB observed that this pattern was consistent across all age groups, which demonstrates that the differences between racial groups are established early on and never go away.
Credit Invisibility Is Correlated With Age
Younger consumers are far more likely to lack credit history than older adults. The CFPB report states that the vast majority (80%) of 18 to 19-year-olds are either credit invisible or have unscored credit records.
For the 20 to 24-year-olds age group, less than 40% are credit invisible or unscored. After the age of 60, however, this percentage begins to increase with age, although it’s not clear exactly what causes this effect.
Because credit history is gradually established over the course of one’s life, it makes sense that credit invisibility and unscored credit records would be more prevalent among young adults.
Income May Affect the Ability to Acquire Credit History
The CFPB found a strong correlation between income and having a credit record that can be scored. In low-income neighborhoods, nearly 30% of consumers are completely credit invisible, while another 15% are unscorable. In total, nearly half of consumers in low-income areas either have no credit history at all or not enough credit history to generate a credit score.
In contrast, in higher-income neighborhoods, only 4% of consumers are credit invisible and an additional 5% have credit files that cannot be scored.
These results aren’t particularly surprising. Income is often even more important than credit score when it comes to qualifying for credit. Even without having any credit history, a consumer with a high income will likely find it easier to qualify for credit than a low-income consumer and thus is more likely to open credit cards or take out loans than a low-income consumer.
Rates of credit invisibility are especially high in low-income neighborhoods.
On the other hand, since low-income consumers may have difficulty accessing traditional sources of credit, they may turn to AFSPs such as payday lenders, which typically do not report to the credit bureaus. This hypothesis may help partly explain why there is such a stark difference in the likelihood of credit invisibility between higher-income and lower-income consumers.
When consumers in low- and moderate-income neighborhoods do become credit visible, according to the CFPB, they tend to make the transition later in life than consumers in middle- and upper-income neighborhoods.
In addition, the CFPB report on “Becoming Credit Visible” concluded that consumers who reside in low-income neighborhoods are three times as likely than consumers in high-income neighborhoods to first acquire credit history from non-loan items such as collection accounts or public records (27% of low-income consumers versus just 8% of high-income consumers).
In contrast, consumers in upper-income neighborhoods are much more likely to start their credit records by opening credit cards.
Since the non-loan credit products are generally derogatory items like collections, this statistic suggests that low-income consumers are far more likely to start off their credit history with bad credit. The negative marks could hinder these consumers from being able to qualify for credit for a long time, which means they would likely have few, if any, opportunities to improve their credit profile with on-time payments toward loans or credit cards.
Geographic Regions of Credit Invisibility
Another CFPB report, this one from 2018, looked at geographic patterns in credit invisibility, such as differences between urban and rural areas as well as the problem of “credit deserts.”
Credit Deserts
Credit invisibility tends to be more common in rural areas.
A “credit desert” is generally defined as an area that lacks access to traditional financial service providers. However, they may have access to AFSPs such as payday lenders.
In these areas, rates of credit invisibility may be higher due to a lack of access to traditional sources of credit.
Urban vs. Rural Areas
The highest proportion of credit invisible consumers is found in rural areas, even in upper-income neighborhoods. This may be related to a lack of access to the internet in rural areas.
What Is Being Done to Solve Credit Invisibility?
Credit invisibility in America is a serious problem that is not going to be solved overnight. It’s going to take overarching structural changes to address the root causes of credit invisibility and credit inequality.
Let’s explore the potential solutions currently being researched by the U.S. government and by the credit scoring and reporting companies to address credit invisibility and credit inequality.
Government Programs to Support Credit Access
In the CFPB’s Annual Financial Literacy Report for 2019, the Bureau described their efforts to support inclusion and serve historically underserved communities by assisting local governments that are working to address credit invisibility in their cities.
These municipal programs typically focus on helping consumers build good credit by providing consumers with credit education, credit services, and credit products.
The CFPB worked with four cities in the fiscal year 2019 (Atlanta, Georgia; St. Louis, Missouri; Shawnee, Oklahoma; and Klamath Falls, Oregon), so it appears that government efforts to combat credit invisibility thus far have been localized and small-scale.
Alternative Credit Data
Using alternative data, consumers may be able to get credit for their rent and utility payments.
Alternative credit data is data derived from sources other than traditional credit reporting information. This may include data from ASFPs, utility payments, rent payments, full-file public records, and financial information that consumers can choose to share, such as bank account information (known as “consumer-permissioned data”).
While alternative data does have the potential to help millions of consumers become credit visible, for a majority of them, that may not be a good thing. FICO’s preliminary research using their alternative data scoring model showed that two-thirds of newly scored consumers ended up with a score that was below 620, which is considered bad credit.
Having bad credit can be even worse than having no credit, so for these consumers, the use of alternative data would hurt more than it helps.
Furthermore, the National Consumer Law Center has argued that the negative effects of such a credit scoring system would disproportionately impact people of color and low-income consumers.
Alternative data may represent a possible solution to credit invisibility, but it should be implemented in a way that does not simply perpetuate and amplify the credit inequality that consumers already struggle with.
How to Become Credit Visible
It’s clear that credit invisibility, lack of access to credit, and inequality in the credit system are not going away anytime soon.
For now, however, we can at least discuss some strategies that individual consumers can use to start building credit and transition from being credit invisible to credit visible in a way that sets them up for success.
Becoming Credit Visible Through Credit Piggybacking
It’s incredibly difficult to get approved for a primary account when you don’t have any credit history to show lenders that you can be trusted. However, you can start to build credit history even without opening a primary account by piggybacking on someone else’s credit.
Piggybacking on another person’s credit can help consumers transition out of credit invisibility.
Credit piggybacking is when you become associated with someone else’s credit record for the purpose of building credit. This is actually a fairly common way for consumers to start establishing credit.
In “Becoming Credit Visible,” the CFPB noted that about 15% of consumers opened their first credit account with a co-borrower, while another 10% first created their credit record by becoming an authorized user on someone else’s tradeline. This means that in total, about one in four consumers initially gain credit history with the help of someone else via credit piggybacking.
There are three main ways to credit piggyback.
1. Get a Cosigner or Guarantor
When you can’t get credit on your own, having someone who has good credit who can vouch for you as a cosigner or guarantor can make a huge difference in your chances of being approved for credit.
However, it can be difficult to find someone to take on this role, since it not only requires someone with good credit but someone who would be willing to be on the hook for your debt if you cannot repay it.
2. Open a Joint Account With Someone
A joint account is an account that you share with another person. Both parties have access to the account and both people can be held responsible for the debt.
If you know someone with good credit who is willing to open a joint account with you, their positive credit history can help the two of you get approved, similar to getting a cosigner or guarantor. Since both parties jointly share responsibility for the account, you should only open an account with someone you trust completely.
Joint credit cards are not very common, so your options for opening a joint account may be limited.
3. Become an Authorized User on a Credit Card With Age and Positive Payment History
Credit invisible consumers can add credit history to their credit reports by becoming authorized users on seasoned tradelines.
While the previous two credit establishment strategies involve opening a new primary account, which means you’d be starting out with no credit age, the authorized user method provides a shortcut to gaining years of credit history.
When you become an authorized user on a seasoned tradeline (an account with at least two years of age), often the full history of that account is reflected in your credit report as soon as the next reporting date for that account. In other words, you can add years of credit age and positive payment history to your credit file in just a few weeks and sometimes even faster.
The CFPB’s research showed that 19% of consumers (about one in five) had at least one authorized user account on their credit record, and over half of these consumers had transitioned out of credit invisibility as a result of one of their authorized user accounts. On average, consumers gained at least two years of credit history from authorized user accounts.
Not all banks report authorized user data, but when you buy tradelines from Tradeline Supply Company, LLC, you can be confident that we only work with banks that have been proven to reliably report authorized user information.
In addition, authorized user tradelines can increase the total credit limit of your profile.
For these reasons, the authorized user strategy is the fastest and easiest way for those who lack credit history to start building credit.
Once you’ve established some credit history through credit piggybacking, you can look into opening your own primary accounts.
Credit-Builder Loans
A credit-builder loan is a good option for those without credit history since they are easier to get approved for than traditional loans.
A credit-builder loan is a type of installment loan designed for those who are just starting out on the path to building credit. Lenders are able to offer these loans to consumers with thin credit files or no credit history because they are set up so that the borrower makes all the payments toward the loan before receiving the funds.
See our article on credit-builder loans for more information on how they work and whether a credit-builder loan could help you.
Secured Credit Cards
Those with limited credit history may also benefit from opening a secured credit card. Secured credit cards require you to make a security deposit, the amount of which then becomes your credit limit. Secured cards typically have low credit limits, but they can help you build credit by reporting your payment history to the credit bureaus.
Retail Store Credit Cards
A retail store credit card may also be a good option for those who do not have a credit history, as they tend to be easier to get approved for than bank credit cards. Just be careful not to carry a balance from month to month since retail cards also tend to have higher interest rates.
For example, the CFPB’s report on becoming credit visible found that low-income consumers were significantly less likely than higher-income consumers to use credit piggybacking methods to establish credit.
Consumers in low- and moderate-income neighborhoods were found to be 48% and 25% less likely, respectively, than consumers in middle-income neighborhoods to become credit visible through a joint account.
Similarly, consumers in lower-income neighborhoods who had recently transitioned out of credit invisibility were less likely to have authorized user accounts on their credit files compared to those in higher-income areas.
In addition, lower-income consumers were less likely to become credit visible via an authorized user tradeline. Lower-income consumers who did have their credit records created as a result of an authorized user tradeline gained less credit history than higher-income consumers.
Since credit piggybacking requires you to partner with someone who has decent credit and/or income, it would seem that perhaps low-income consumers simply do not have access to these resources and partnerships within their social networks.
In the words of the CFPB, “…a lack of co-borrowers may be an important contributor to credit invisibility in low- and moderate-income neighborhoods.”
Today, authorized user tradelines are affordable and accessible to more consumers than ever before.
As we learned earlier, credit invisibility is significantly more prevalent among Black and Hispanic consumers. Altogether, the data suggest that consumers who are Black, Hispanic, or low-income are at a severe disadvantage when it comes to establishing credit and building a credit history.
These are just a few of the many ways in which inequality is manifested throughout the credit system. Simply put, privileged consumers have the opportunity to build credit through credit piggybacking while many others are denied this opportunity.
Historically, the strategy of building credit by becoming an authorized user was primarily limited to the wealthy. Today, however, a marketplace exists where consumers of all backgrounds can take advantage of the benefits of authorized user tradelines.
In addition, there is a wealth of information online that consumers can use to educate themselves on the credit system and start off on the right foot when it comes to building credit.
As a leader in the tradeline industry, Tradeline Supply Company, LLC has opened the door to equal credit opportunity for thousands of consumers. By offering some of the lowest tradeline prices in the industry, we have made tradelines more affordable and accessible to the consumers who need them most.
One question we often hear is “Do tradelines still work in 2020?”
Fortunately, we can say with certainty that tradelines do still work in 2020, 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 2020, 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 2020: 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.
Use our list of common mistakes below to make sure you get the most out of your authorized user tradelines. Don’t make the same mistakes we’ve seen before!
1. Having fraud alerts or credit freezes on your account
If you have fraud alerts or credit freezes on your account, new tradelines simply will not post on your credit report.
Fraud alerts essentially freeze your account, so new information cannot be added. If you have fraud alerts on your credit file, you must contact each credit bureau directly to have the fraud alerts removed before you will be able to add new tradelines to your file.
2. Not knowing how tradelines work
The most important factor in purchasing tradelines, in our opinion, is to understand how tradelines work. Without this understanding, it is easy to let commissioned salespeople lead you astray and sell you tradelines that are not the best for your particular situation.
If you are new to tradelines, then be sure to check out our Tradelines 101 infographic for a crash course on the basics as well as the large library of educational articles in our Knowledge Center.
3. Not understanding how credit scores work
Before buying tradelines, it is vital to have a general understanding of how your credit score works. There are tons of useful resources online that can walk you through what factors affect your credit score, such as our guide to building credit with tradelines. Knowledge is power, and understanding how credit scores work is worth the investment since your credit score can affect everything from your finances to your job.
The power of a tradeline does not necessarily depend on its price tag.
4. Judging the power of a tradeline strictly by price
When buying tradelines, putting price first is not wise. It is easy to assume that the more expensive a tradeline is, the more powerful it is, but this is not always the case.
For example, someone with a very established credit profile might look at a $1,000 tradeline and just assume that it is the one they want. However, if that $1,000 tradeline does not significantly improve their current average age of accounts or lower their already low utilization ratios, it may not have very much of an effect, or it could even hurt their credit!
Simply adding more of what you already have is not necessarily an improvement. Our Tradeline Calculator is the perfect tool to calculate where your numbers currently stand and how they may be affected by new tradeline data. Make sure to only select tradelines that will actually help you.
5. Not realizing that the power of a tradeline is always going to be relative to what is in your credit report
The power of tradelines is always going to be relative to what is already in your credit file.
For example, if your average age of accounts is already 10 years old, an 8-year-old tradeline may not necessarily help you very much, since you are not improving that variable.
On the other hand, if someone’s average age of accounts is only 1.2 years old, an 8-year-old tradeline may be more powerful for that person. Tradelines do not affect people in the exact same way because everyone’s credit file is unique.
For more information on choosing the best tradelines for your particular situation and goals, our buyer’s guide to choosing a tradeline is a valuable resource.
6. Relying strictly on buying tradelines
It is not smart to rely only on purchasing authorized user tradelines when building or rebuilding credit. In general, tradelines that you can purchase are usually authorized user positions on credit cards, which are revolving accounts.
While this can be very powerful, almost all credit scoring models will take into account your total mix of credit, and it is more favorable to have a good mix of different kinds of credit accounts.
Some additional examples of different types of credit accounts may include auto loans, mortgage loans, installment loans, etc. Having a good mix of credit types is ideal. For more detailed information on how to optimize your credit mix, check out our article, “Credit Mix: Do You Need to Care About Types of Credit?“
In addition, if your credit report has delinquencies such as collections or late payments, tradelines may not solve your problems. You may need to consider repairing your credit before adding tradelines or in tandem with your tradeline strategy. [Disclosure: This article contains affiliate links.]
The age of a tradeline, also referred to as “seasoning,” is often even more important than its credit limit.
7. Valuing limit more than age
Many people initially focus only on how large of a credit limit a tradeline has. They often think that the tradeline with the largest credit limit is automatically the best tradeline.
For example, they might ask, “Should I get the $30,000 tradeline, or do you think the $20,000 one is enough?” However, this question is flawed from the start.
As a real-life example, it is not uncommon for someone to open a new credit card (possibly with a high limit) and that person’s credit score drops initially. Perhaps the reason the person’s score goes down is a new account has no payment history and may pose a higher risk in the eyes of the credit bureaus until a pattern of on-time payments is established. In this example, a new high-limit primary account actually made their credit score go down initially.
It could be the case that a tradeline with a $1,000 limit is actually the best for them because maybe that one has a lot of age and meets their strict budget. Everyone should consider the age and the limit together when buying tradelines and use the Tradeline Calculator as the first step in assessing your situation.
8. Buying cheap tradelines as a test
Some people will use the strategy of buying a cheap tradeline to see what that does first, and if it works a little, then they will buy a better one next time. We feel this strategy is a mistake.
For one, it ends up costing more in the long run, because now they have to buy two tradelines (one cheap one and one better quality one) when the person would probably be better off just getting one high-quality tradeline to begin with.
Also, buying that cheap tradeline may be working against the goal of improving the average age of accounts because in general, cheap tradelines do not have very much age. So when you add a tradeline with little to no age and then later add a tradeline with age, the first tradeline with little to no age ends up lowering the average age of accounts, thus making it more difficult to improve that average.
Calculating your average age of accounts is crucial when choosing the best tradelines for your credit file.
9. Not doing the math on the average age of accounts
You would be surprised to find how difficult it is to significantly change an average, especially when there are multiple accounts in the equation.
As an experiment, imagine there are 5 accounts that are all 2 years old so the average age of accounts is 2 years old. Now guess how old a new 6th account would have to be in order to make the average age of accounts be 5 years old. (Take some time to guess this answer.)
The answer: 20 years old! Seriously, do this math. 2 + 2 + 2 + 2 + 2 + 20 = 30 divided by 6 accounts = 5 years average age of accounts. The easiest way to do the math for yourself is by using our Tradeline Calculator.
Even most “experts” at other companies do not do this math correctly and often guess wrong, and therefore give bad advice to customers as to which tradelines to buy.
10. Not getting old enough tradelines
If you look at the example above, you will see how easy it is to underestimate how old of a tradeline you may really need in order to significantly improve your average age of accounts. Age is essential. Do not underestimate how difficult it is to significantly change an average. Use the Tradeline Calculator to know for sure.
11. Not buying your tradeline far enough in advance before the reporting date
When you place an order for a tradeline, there is a processing time in order for the tradeline company to receive the funds. For example, with our eCheck payment method, it may take up to 5 business days to receive the funds.
Then, the credit partners have up to two days to add the authorized user. The credit card company may then have their own processing time for updating their records internally. Next, the banks update the credit bureaus, and finally, the credit bureaus publish their records.
For this reason, our “Purchase By Date” is typically around 11 days prior to the beginning of the reporting period. So as long as you purchase the tradeline by the Purchase By Date, we guarantee that your tradeline will post in the next reporting cycle.
12. Urgently needing a tradeline to post, but only buying one tradeline and betting your entire outcome on that one posting
Our posting success rate is the highest in the industry, but even given this fact, credit report data is not always going to be perfect.
In other words, although rare, non-postings do occur, and if you are betting your entire outcome on the results of one tradeline, you may want to consider hedging your bets and buying two tradelines to be safe.
In short, two is often better than one for many reasons. If it is extremely critical to get a tradeline to post, it is safer to just buy two.
13. Buying tradelines instead of paying down your debt
If you have credit cards with high utilization, it is usually best to pay those debts down before buying tradelines.
Having credit cards with high utilization ratios is a negative factor in your credit report. This negative factor will always play a part in your overall credit picture as long as it exists.
The only real way to solve this problem is to pay down your credit cards. You should do the math using our Tradeline Calculator to see where your money is better spent, but in general, paying down your debt is usually the best advice.
14. Thinking tradelines will fix high utilization
Tradelines should not be thought of as the solution to high utilization on your credit cards. While tradelines can affect your overall utilization ratio, having individual cards with high utilization will still be a factor in your overall credit picture.
In other words, you should not only take into account your overall utilization ratio, but also the individual utilization of each of your credit cards and the number of cards that have high utilization vs. low utilization. Again, the solution to the problem is paying your cards down.
15. Not factoring in closed accounts when calculating your average age of accounts
Many credit scoring models factor closed accounts into their equation. For example, some people with zero open accounts can still have a good credit score. Clearly, the closed account data is still part of the equation.
If you end up needing your tradeline to stay active on your credit report for longer than two reporting cycles, you don’t have to buy a whole new tradeline when the time is up. We offer unlimited extensions in 1-cycle increments at half the cost of the original purchase price.
Simply let us know at least 2 weeks before the scheduled removal date if you’d like an extension.
Make sure to use trusted platforms that provide secure online transactions.
17. Buying tradelines from an unethical company
Unfortunately, in this industry, it can be hard to know who to trust. It is essential to do your research and choose a company you trust so you don’t waste your money on low-quality tradelines, tradelines that don’t post, or tradelines that are overpriced.
You also need to be sure to only use reliable platforms that provide secure online transactions. Warning signs that could indicate that a company lacks integrity include fake reviews, unavailable or poor customer service, and websites that are not secure or do not look professional.
18. Asking what the average boost of credit score is
We do not guarantee any boost of your credit score and we also cannot say what the average credit score boost from tradelines is. Tradelines affect everyone differently. One tradeline may help one person while that same tradeline may hurt another, and have no effect on someone else.
All tradelines will be relative to what you already have in your credit file. There is no meaningful average effect of tradelines in general.
Although we do not guarantee any boost of your credit score, often when we hear a variation of the following question. The request goes something like this… “I currently have a 520 credit score but I want to be over 700. What tradeline do you recommend to accomplish this?”
Again, we are unable to answer these kinds of questions, but in talking about this topic in general, who says that it is even possible to go from a 520 to over 700 anyway? Not us. (Although we are not saying it is impossible either.) We just do not advise on these types of credit score requests.
But going back to talking in general, if someone has a 520 credit score they probably have some serious derogatory accounts in their credit. If they have such derogatory accounts in their credit file, their credit score will probably not be a 700 regardless of what other tradelines may exist in their credit file. So in this example, the question itself is flawed, since it may be impossible to begin with.
Even in less extreme examples, no one knows the exact credit score algorithms, so no one can say with certainty. Therefore, it is best to not ask that question, because whoever answers that question is making a wild guess and they could easily be wrong and give you bad advice.
Steer clear of CPNs, which could get you caught up in felony identity fraud.
20. Buying tradelines for a CPN
We do not sell tradelines to those trying to use CPNs.
The reason for this is that the Social Security Administration and the Federal Trade Commission have both stated that CPNs are not legitimate and that the use of CPNs to obtain credit is fraud and a federal crime. We highly recommend avoiding any person or business trying to sell you a CPN.
21. Thinking that buying a high-limit tradeline automatically means that you will also get approved for a high-limit credit card
Having a high-limit authorized user tradeline does not automatically guarantee that you will get approved for your own high-limit credit card. Most banks that offer credit cards will typically also consider your income, expenses, credit score, and possibly several other factors relating to your ability to repay debt in order to make a decision on whether or not they are willing to extend credit to you.
22. Mistaking tradelines for credit repair
Buying tradelines is not credit repair. Credit repair seeks to correct inaccurate items on your credit report. If you have inaccurate items on your credit report, you definitely want to get those items removed. [Disclosure: This article contains affiliate links.]
If you have bad credit, you may need to fix your credit in order to get the maximum benefit possible from tradelines.
Occasionally we get a call from someone who might tell us that they are currently 90-120 days late on 2-3 accounts and their credit score is in the dumps. Can we help someone with extremely bad credit? The answer is probably no.
Again, we are not able to advise on credit scores (only general information) but in our opinion, if they are currently that far behind on bills and have multiple major derogatories on their credit report, there is no way they can have good credit without correcting the situation.
After all, a credit score is meant to calculate the likelihood of someone defaulting on a credit account, and if they are proving that they are currently in default, then their credit score is going to reflect that. The best advice is to pay those accounts current if they are trying to improve their credit.
24. Buying tradelines from the wrong banks that don’t post well
The truth is that most banks across the country do not post authorized user data very reliably. In other words, with most banks, the odds of a non-posting are very high.
Our company has tried out almost all of the common banks, and due to our high volume of tradeline sales, we have amassed a large amount of data. We know which banks post well and which ones do not. In fact, just about every other tradeline company out there sells tradelines from many more banks than we do.
The reason for this is not because we do not have that inventory available. It is because our integrity level when it comes to the reliability of our postings is so important to us.
The truth is that any company who sells tradelines from more banks than we do automatically has a higher non-posting probability and a lower integrity level. Saying it bluntly, we have the highest posting success rate in this industry because we only work with the best of the best banks that post the most reliably. All other tradeline companies have a lower posting success rate because they work with banks that are less reliable.
If you have a bankruptcy or collection with a bank, tradelines from that bank may not post for you.
25. Having filed bankruptcy with the bank you are ordering a tradeline with
It is possible that some banks will not work with a person if they have filed bankruptcy with that bank. They may be in a sort of “blacklisted” status with that bank.
This can also apply to authorized user positions. Therefore, if you owed a debt to a particular bank when filing for bankruptcy, it is best to choose a tradeline from a different bank as a precaution.
26. Having outstanding collections against the bank you are ordering a tradeline with
Similar to the point made above regarding bankruptcies, having outstanding collections with a certain bank could also pose an issue. The collection status is probably less of a risk of non-posting than the bankruptcy status, but it is still worth mentioning as a potential problem.
27. Thinking that primary tradelines are the best option
Since there are many different credit scoring algorithms, everyone actually has many different credit scores.
Often the main goal of someone shopping for tradelines is to eventually open their own primary accounts. However, we regularly get calls from people asking if we sell primary accounts. The answer is no, we do not.
Being the primary borrower on an account means someone extended credit to that individual and they are financially responsible for that account. In other words, that person is actually issued credit.
We know of some options within the tradeline industry where companies really will issue credit and that accomplishes the “primary tradeline” desire that some consumers have, however, they are usually relatively low limits, and of course, they have no age since it is a brand new account.
So is a primary account with a low limit and no age better than an authorized user tradeline with a high limit and lots of age?
From what we have seen, if we had to choose between these two scenarios above, we believe the authorized user tradeline with age and a higher limit would be the more powerful choice.
28. Not realizing that you have many different credit scores
Each major credit bureau has its own algorithms and reporting methods, and even within each credit bureau, there are many different versions of credit scoring models. Often, the score that is used depends on what kind of company is ordering the report.
For example, not only might your credit score be different at each credit bureau, but the score might also be different depending on whether you are applying for a mortgage, a credit card, a car loan, or trying to rent an apartment.
The credit scoring algorithm used might be one of many different versions of the FICO score, or it could be a VantageScore.
It is possible that each person has over 30 different credit scores. If you google “how many credit scores do I have,” you can read more about this.
The authorized user must use the correct address that is on file with the credit bureaus to ensure the tradeline will post.
29. Not using the correct address that is on file with the credit bureaus
When adding an authorized user to a credit card, it is important that the authorized user provides the correct address that is on file with the credit bureaus. The authorized user’s address is a data point that helps identify the person, and if that does not match up, there can be issues with the tradeline posting.
Check your credit reports to confirm that the address in your file is correct and then make sure to provide this same address when purchasing your tradelines.
30. Having no credit score at all
There are instances where some people do not have any credit score at all. There may be several reasons why this is the case.
For one, maybe the person just never had any credit at all. If this is the case, then getting a tradeline to post should not be a problem.
Another possibility is that the person had derogatory items on their credit report and participated in some sort of aggressive credit sweep or credit repair deletion service that essentially deleted everything from their credit report.
In these types of scenarios, getting a tradeline to post can be a problem. Sometimes there may be blocks on that person’s credit file that prevent the new authorized user account from posting.
31. Not having enough tradelines or having only authorized user tradelines in your credit file
As we mentioned, having a good mix of various credit types is important to building good credit. Therefore, you do not want your entire credit profile to be made up of authorized user tradelines exclusively.
In general, the best credit profiles belong to people who have multiple tradelines from a variety of different types of credit, including credit cards, auto loans, mortgages, installment loans, etc.
A tradeline alert is a notification that a new or updated tradeline has posted to your credit file. To set one up, you will need to sign up for a credit monitoring service.
We ask our customers to make an account with Credit Karma, a free online service that automatically notifies you when new accounts have been added to your TransUnion or Equifax credit report. Credit Karma is also how you will verify whether or not your tradeline has posted.
33. Entering your personal information incorrectly when placing an order
As we alluded to above, there are certain pieces of information that need to match up in order for a tradeline to post to your credit report, such as your name and address. In order for the banks and credit bureaus to verify your identity and link the tradeline to the correct credit profile, the personal information you provide when buying tradelines needs to be 100% accurate, or else there is a chance that your tradelines will not post.
Unfortunately, people often make mistakes when typing in their names and addresses, which can result in their tradelines not posting. Be sure to double-check all of your information for accuracy and correct any typos before placing your order to ensure that your tradelines post to your credit report.
Although we are proud to have the best posting rate in the industry, we can’t prevent the occasional non-posting because unfortunately, the banks and the credit bureaus are not always 100% accurate in their reporting processes.
If your Credit Karma credit report has been updated after the last date within the reporting period and your tradelines still haven’t posted, you can follow these instructions to request a refund or exchange for the non-posting tradeline.
When buying tradelines, use some best practices to get your tradelines to post so there is a lower chance of having to deal with a non-posting.
Still feeling unsure about tradelines? Check out our Tradeline FAQs.
What mistakes have you seen when it comes to authorized user tradelines? Are there any common mistakes that you would add to this list?
The vast majority of lenders use your FICO credit score to evaluate your credit risk as a consumer when they are deciding whether or not to extend credit to you. And yet, historically, it has been costly for consumers to access their own FICO scores.
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 “
FICO, the company behind the creation of the original FICO credit score and its many subsequent iterations, has announced the latest model in their line of credit scoring algorithms: the FICO Score 10 and the FICO Score 10 T. The “T” in the latter scoring model stands for “trended,” which reflects the incorporation of trended data over time into the algorithm.
Here’s a number that may shock you: about one in five American adults do not have a credit score.
