In 2018, the average credit score in the United States was 704, which is considered ‘Very Good,’ and it is. Some lenders may offer people with this score the lowest rates, but there is no guarantee.
If you are one of the many Americans who find themselves in this boat, then you probably want to improve your credit score so you can also be a member of the 800-Plus Club. To do so, you must learn and understand everything there is to know about credit tradelines and how they affect your credit report.
Not to worry, we have all the answers you need. Read on to learn more!
Okay, Let’s get to it. What are tradelines?
In a nutshell, tradelines are any account that shows up on your credit file. These accounts include mortgages, auto loans, student loans, credit cards and lines of credit. These accounts, or tradelines, get listed on your credit report along with all the pertinent data your lender reported to the credit bureaus.
Each account appears on your report as a separate entry and includes valuable data like the status of your account and when you last paid.
You can open a new tradeline in many ways, but the most common is to take out a loan or get a credit card. What many people don’t realize is that if you open too many accounts at once, it can harm your credit score more than help it.
What Gets Reported on Credit Tradelines?
The information reported by a lender often varies, but usually includes the following: the lender’s name and address, the type of account, part of the account number, current account status, the date the account was established and/or closed, the date of the last activity, the current balance, the original loan or credit limit, the monthly payment or most recent balance and the payment history.
Having this information all in one place for a lender to see is a really good thing for you. Doing so allows lenders to cross-examine the information on your report to determine what they deem your actual creditworthiness is instead of basing it on a potentially arbitrary number.
For example, if you have a $500 credit limit and it is maxed out, a lender may not bat an eye. On the other hand, if you max-out your $10,000 credit limit, there may be cause for concern.
What Kind of Credit Accounts are There and Why is it Important?
There are three primary account types: revolving tradelines, installment tradelines, and open accounts.
When you think of revolving credit tradelines, think credit cards. These account types have a credit limit. As you use the line of credit, you must pay it down by a minimum amount each month and any remainder due carries over to the next month.
Installment Tradelines are more like mortgages and student loans. You pay a set amount each month to pay off a larger pre-determined amount owed.
Utility bills are the best example of an open account. The monthly payments for these accounts vary and are always due in full.
Your credit mix accounts for 10% of your credit score. Having diverse credit lines means you can manage different kinds of credit accounts. Lenders tend to like this.
How Much Does my Account Status and Payment History Actually Affect my Credit Score?
Your account status and payment history make up about 35% of your credit score. The status “Pays as Agreed” is what you want to see.
Late payments are usually reported at 30, 60, 90, 120, 150 and 180 days. After six months of not getting paid, most creditors close the account. Mortgages are the exception. They will write-off debt as early as 120 days.
Accounts closed in this way will stay on your credit for up to 7 years.
They Look at the Date the Account was Established and Closed?
Absolutely! If you have had an account in good standing for two or more years, lenders like that. It helps them see a trend of good payment history.
If your account has been open less than two years, and you have no other credit tradelines, it is difficult for lenders to know how credible you are when you promise to pay them back.
The date the account closed also tells a story. How quick are you to pay off your debts? Did you pay it off early by voluntarily increasing your monthly payments? Or maybe you weren’t always able to pay the full amount and wound up paying late.
Keep in mind that paying off too early can throw up red flags. Perhaps you had to borrow money from someone else to pay off a loan because you couldn’t handle the debt like you thought you could.
Why Should I Know What is on my Credit Report?
By now, you have likely figured out several reasons why you should know what is on your credit score. So, next, we are going to talk about some of the less obvious reasons.
While it is way easier to fix credit problems before they get reported, life happens and sometimes clean up is necessary. Checking your tradeline credit report makes that chore a little easier by creating a debt checklist.
Your credit report contains all the vital details about who you owe money to. It is a good idea to check your credit report to make sure nothing falls between the cracks and you wind up with unforeseen credit issues.
Experian, Equifax, and Transunion are the three national credit bureaus. Lenders report information about the debts owed to them to these three bureaus and the bureaus create credit reports based on the data received.
Neither the credit bureaus nor the lenders are perfect. Mistakes happen, but thanks to the Fair Credit Reporting Act you can dispute credit report errors by contacting the national credit bureaus directly.
You can get one free credit report from all three credit bureaus once every 12 months. It is a tool you can’t afford to ignore.
The best way to get a high credit rating is to have several active credit tradelines of varying types. The accounts need to have a perfect payment history and there should be no maxed-out lines of credit.
Since it is important to have an established history, most accounts need to be at least two years old to promote a healthy score. This does make it difficult for people with no credit history to start earning credit, but there are ways.
For instance, you can get added as an authorized user to an already established line of credit. You can also speak with a certified reporting agency that can report things that aren’t usually reported to the credit bureaus, like rent, for you.
No matter how you choose to go about improving your credit score, we hope you will take a look at our financial toolkit and make us a part of that journey.