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.
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.
"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.
Is buying tradelines legal?
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.
Industry is cracking down on buying tradelines
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).
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.
The problem is...
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.
Alternative ways to improve your credit score
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…
Ask a family member to add you as an authorized user
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.
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.
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).
Written on November 24, 2020
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at email@example.com.
Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.