Your credit score impacts everything from whether you qualify for a credit card to the interest rate you're offered on an auto loan or mortgage and even how much you pay for some insurance policies. So it's easy to understand why many people look for any opportunity to boost their credit score.
One method people turn to in hopes of building credit fast is by buying an authorized user tradeline.
But does it work?
Here's what you need to know.
A tradeline is essentially an account that shows up on your credit report. Learn how to read your credit report.
One common piece of advice for building credit is to ask a family member with good credit to add you as an authorized user on their credit card account. That way, your credit score benefits from the primary user's lengthy credit history, on-time payments and low utilization rate.
Buying a tradeline is sort of like becoming an authorized user on someone else's credit card account.
However, as Experian points out:
"There are two big differences: 1) When you buy a tradeline, you don't know the person who is adding you as an authorized user on their account, and 2) you pay them money for the access.
Buying tradelines is done through a third-party service for a fee, and prices can reach into the thousands of dollars. Once you purchase the tradeline, it will typically remain on your credit report for a short period, after which you'll be removed from the credit card account."
While you're an authorized user on the account, you don't actually have access to the line of credit.
You just "piggyback" on the primary user's account for a short time – usually anywhere from two months to one year.
Whether or not buying tradelines is legal may be a moving target.
While the practice might not be strictly illegal, Experian says:
"Buying tradelines may be viewed as deceptive by lenders and credit reporting agencies, and could even put you in danger of committing bank fraud."
Well, lenders use the information contained in a credit report to decide whether they should loan someone money and what interest rates they will offer.
If buying a tradeline artificially inflates the person's low credit score, the lender might wind up making loans to borrowers who don't meet their qualifications or loan money at a lower rate than they would otherwise offer.
Several recent news stories indicate that lenders, credit reporting agencies, and even the federal government are cracking down on the practice of buying and selling tradelines.
According to myFICO, their new credit scoring model, FICO Score 8, includes technology designed to reduce the impact of buying tradelines:
"To protect lenders and honest consumers, FICO Score 8 substantially reduces any benefit of so-called 'trade line renting.' That's a credit repair practice that entices consumers into being added to a stranger's credit account in order to misrepresent their credit risk to lenders."
Many credit card agreements now include language prohibiting cardholders from selling access to their accounts and can close the account if the cardholder is caught violating the card terms.
And finally, a recently settled Federal Trade Commission case against the credit repair company BoostMyScore (BMS).
According to the FTC's press release, BMS:
"charged struggling consumers steep, illegal fees and made unsupported promises about how piggybacking would pave the way to new credit, including mortgages and other loan products."
Under the terms of a proposed settlement with the FTC, BMS will no longer be allowed to sell access to another person's credit as an authorized user and will be required to pay a fine to the FTC.
Even if buying tradelines is legal, it may not be effective for building a good credit score – at least in the long term.
In theory, buying tradelines raises your credit score by improving three factors that go into calculating your credit score:
1 - Payment history
As long as the credit account's primary user continues to pay their bills on time, you can benefit from their on-time payment history.
But what happens if you buy a tradeline and the cardholder forgets to make a payment that month? Your credit score will be negatively impacted.
2 - Amounts owed
By piggybacking off of another borrower's credit account, you may be able to lower your credit utilization ratio – the percentage of available credit you're using.
Say you currently have one credit card with a $1,000 credit limit and a balance of $800. Your credit utilization ratio is 90%.
If you buy a $2,000 tradeline, according to your credit report, you would have a total credit limit of $3,000 and a credit utilization ratio of 27%.
Since most credit experts recommend keeping your credit utilization ratio under 30%, buying a tradeline would lower your ratio enough to put you in the recommended range.
3 - Length of credit history
Generally, the longer you've been using credit, the better your score will be.
If you're new to credit, this is an element of the credit score calculation that's hard to improve quickly.
However, by renting a seasoned tradeline that's been open for a decade, you can instantly boost the age of your oldest account and the average age of all of your accounts.
These benefits fall off your credit report as soon as you're removed as an authorized user.
This reverses any improvement to your credit utilization ratio and length of credit history and leaves you right back where you started. So if you had bad credit before, you'll likely have it again, unless you built credit in other ways too.
Also, piggybacking on a stranger's credit exposes you to potential identity theft.
To add you as an authorized user, the person renting out their credit card account has to give the credit card company your name, address, date of birth, and Social Security number.
If the person renting out their credit card account decides to use your personal information to steal your identity, your credit could wind up worse than it was before you got involved in buying tradelines.
There are plenty of less risky ways to improve your credit score, and they don't cost thousands of dollars for results that will have little (if any) impact on your credit.
Here are three to start with…
Asking someone you know and trust to add you as an authorized user on their credit card won't cost you anything. Plus, you'll usually get a card linked to the account.
Using a credit card responsibly can help you develop good credit habits.
Taking out a credit builder loan could help you build your payment history and improve your credit score over time.
Secured credit cards are designed for people with low or no credit scores. Pay off the card on time every month, and the credit card issuer may be willing to upgrade you to an unsecured card after a while. (Learn how to use a secured card to build credit.)
Buying tradelines may seem like a quick and easy way to build your credit quickly, but like most credit repair schemes, you need to watch out for anything that sounds too good to be true.
Purchasing tradelines is expensive, legally and financially risky, and there's no guarantee that you'll get the benefits you're hoping for. Don't waste your time or money when there are better options out there.
Download the Self app to get started.
The Balance. ""What Is a Tradeline on a Credit Report?". https://www.thebalance.com/what-is-a-credit-report-tradeline-4584436
House of Debt. "How To Make Money Selling Tradelines? Is It Even Illegal?". https://houseofdebt.org/selling-tradelines/
Halt.org. "Wondering If Buying Tradelines Is Legal? The Answer Is Yes!". https://www.halt.org/wondering-if-buying-tradelines-is-legal/
Janet Berry-Johnson is a Certified Public Accountant and freelance writer with a background in accounting and insurance.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).