About the Author
Aileth is on the Operations Team with RentReporters. She has been a part of the community since 2018.
If you’ve ever looked into ways to boost your credit or checked out credit repair services, you may have come across the term “credit tradeline.” Don’t knock yourself on the head if you don’t know what that term means for you and your overall credit, we’re here to help you find the answers!
A credit tradeline is any credit account that you’ve established with a lender and will appear on your credit report. The information on these tradelines not only provides a more comprehensive look into your financial habits, but it also helps lenders make decisions on who they establish credit with.
-Current status (open vs closed)
-Original and remaining balance (revolving vs installment)
1. Revolving tradeline is any line of credit. Examples of revolving tradelines would be credit card accounts, home equity lines or business lines of credit.
2. Installment tradeline is a fixed loan that you have to pay back. Examples of installment tradelines would be car loans, mortgages, student loans, and personal loans.
If you took out a $40,000 car loan, your credit report would show an installment tradeline with an opening balance of $40,000. As you make payments each month, those payments are deducted from the opening balance, and your tradeline will show your current balance. The lower the current balance and each successful payment you make strengthens your credit score and credit history.
3. Open Account is a hybrid of both revolving and installment accounts, which is what we help establish!
Our tradelines function as a revolving monthly credit in the amount of the rent due each month. As long as your rent is paid on time each month, your tradeline balance will be at $0. We can’t stress enough the importance of not being late on rent or credit card payments!
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To simply put, as long as you manage your tradelines by paying on time and not taking out more debt than you can manage, your credit score should benefit over time. If you can manage your credit well, a variety of tradelines on your credit report is generally a good thing.
We’ll take a look at some best practices to keep your tradelines and credit report in tip-top shape below.
Every time you make an on-time payment for one of your tradelines, you are adding positive payment history on that tradeline. Payment history is looked at as a percentage of on-time payments across all of your payments on all tradelines.
We’ll break it down a bit further.
If you only have 5 tradelines, each open for 10 months, and you have one late payment total across those accounts, that’s 49 on-time payments and one late payment which is a 98% positive payment history. On paper, that may look great, but it is important to note that anything below 99% is considered bad and your credit score will take a hit.
Having a variety of tradelines shows you can manage several different lines of credit properly. If you have a credit card on your account and then get a car loan, you now have two different types of tradelines and this will positively benefit your score.
If you have high utilization on your tradelines–meaning, that you are using a high proportion of the total credit available to you–the harder it is to pay back those debts and that will ultimately hurt your credit score. It is recommended that consumers keep their total debt below 30% of their total credit.
Opening a new credit card can actually help your credit score because your utilization rate will decrease, due to the higher total credit limit from the new card. Just don’t spend on the new card and pay off balances on time for any others that you have!
When you open a new tradeline like a credit card or loan, this will actually lower your average credit age because the age of the new tradeline is zero. Over time as the tradeline becomes seasoned and you make on-time payments, it will positively affect your average credit age.
There is a special type of tradeline you can add to your account that’s already seasoned and therefore will only positively affect your credit, and what we at RentReporters actually do!
RentReporters will establish a tradeline on your credit report as an installment loan, then report your rent to the credit bureaus on that installment. This gives you a new type of tradeline on your account, and since we report the past 24 months of payment history, the loan is already “seasoned” with 24 months of payment history, meaning it won’t have a negative impact on your credit age in the same way that a brand new credit card would.
A normal installment loan affects your debt to income ratio (DTI) which is how much debt you pay every month compared to how much money you make every month, and your rent is included in this number as a debt.
One of the best parts with RentReporters is that since your rent is already factored into your DTI–and it’s probably the largest part of your DTI as well–our tradeline doesn’t have any negative impact on your DTI because it’s already factored in!