Stop - You Should Never Pay to Be Added to a Tradeline

The desire to earn better credit is not only understandable, it is also incredibly smart. The condition of your credit will have a big influence over your financial life.

Want to purchase a home or vehicle? Your 3 credit reports and scores play a big role in your ability to qualify for a loan and help determine the rate you will be offered if you are approved. Applying for a new job or promotion? Your credit reports might play a role again. In fact, the condition of your credit could be considered whenever you take out insurance coverage, open a new mobile phone account, and in many more situations than you probably ever believed possible.

Hopefully you already understand the importance of earning good credit and you are working to try to repair the damage from any past credit problems you may have encountered. Yet the truth is that the road back to healthier credit is not always a quick journey.

You can certainly do things to potentially help speed the process along such as establishing new, positive accounts and monitoring your three credit reports and scores closely. Even so, it may require a little patience and discipline on your part before you can expect to earn good credit again.

Tradeline Rentals

Because credit is so important and because improving your credit can sometimes be a slow and tedious process, you may find yourself tempted to take a few shortcuts along the way. The temptation is understandable, but taking shortcuts to try to improve your credit can actually be quite dangerous.

One such shortcut which you should avoid at all costs is known as tradeline renting.

There is no question that being added onto someone else's credit card account as an authorized user has the potential to help your credit scores. If a loved one adds you onto an existing, well managed credit card account (no late payments, low or $0 balance) the impact upon your personal credit scores might be very positive, once the account shows up on your credit reports. If the account has been opened for a while (aka it is "seasoned") and if the credit limit on the account is high then the positive credit score impact might be even more significant.

There is certainly nothing wrong with being added as an authorized user onto a credit card belonging to a friend or family member. As already mentioned, the authorized user strategy can potentially be a very effective step toward building or rebuilding your credit. If you are considering gaming the system by renting or "piggyback" on a stranger's credit card account as an authorized user, however, you could possibly find yourself in hot water, legally speaking.

The Danger of the Tradeline Rental Scam

The tradeline renting scam comes in a few different flavors. Typically it is a service which is facilitated by a broker or a middle man who, for a sizeable fee, will connect you with a stranger who has older or seasoned credit card accounts which are in good standing. Once you pay your fee, the stranger adds you onto their credit card account as an authorized user. The middle man pays the stranger with good credit a small portion of the fee collected from you and then puts the remainder in his own pocket.

It is arguable whether or not the practice itself of paying a stranger to add you as an authorized user is illegal. Some think yes, others think no. However, if you apply for any new loans after paying to be added to a stranger's credit card account then there is no question that you could run the risk of being charged with bank fraud. (Plus if you applied for your new loan over the phone or via mail, you may risk being charged with mail fraud or wire fraud to boot.)

Additionally, FICO's newer credit scoring systems have logic designed to detect piggybacking scams. As a result, even if you pay to be added onto a stranger's account, you might receive no benefit from the tradeline whenever a lender pulls your credit scores. With so many legitimate means of repairing poor credit, it simply is not worth the risk of renting a tradeline in an attempt to speed up the process.



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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

5 Perks You Can Land If You Have Great Credit Scores

Everyone loves earning perks, benefits, and bonuses, right? Credit card reward programs, brand loyalty programs, and even grocery store discount cards are built upon this very concept. Yet while most people can easily recognize the value of a credit card rewards program, there are still many consumers who do not see the value of having high credit scores in the same light. That is a costly mistake.

The truth is that great credit scores can help you to land a lot of awesome perks. Check out the list below and learn more about some of the benefits you can enjoy by maximizing your credit scores.

1. Saving with Lower Insurance Premiums

When you have excellent credit scores you can often secure lower insurance premiums. You may not be aware of this fact, but insurance companies routinely check credit scores whenever you apply for a new auto or home insurance policy. In fact, when it comes to auto insurance pricing, your credit scores might even be more influential than your driving record itself.

Earning great credit scores often pays off every single month in the form of money saved on insurance premiums. If your credit has improved since you took out your current insurance policy, it might be advisable to speak with your insurance agent or perhaps shop around to see if you now qualify for a better price on insurance coverage.

2. Saving on Deposits

When you open a new utility account it is often common practice for the utility provider to check your credit in order to determine whether or not you will be required to put down a deposit for service. As a result, when you apply for new electric service, gas service, cable service, or internet service, having less-than-stellar credit scores can cost you. Additionally, when you apply for a new mobile phone account, your credit will typically be consulted not only to determine whether or not you will be required to put down a deposit for service, but also to determine whether or not you qualify for a new account at all.

3. Saving Interest Fees Every Month

Did you know that financing a home with a questionable credit rating could realistically cost you tens of thousands of dollars over the course of the loan? For example, purchasing a home with a credit score of 620 could cause you to pay an extra $235 per month on a $300,000 mortgage compared to what someone with a credit score of 740 would likely pay for the same loan. Over the entire course of a 30 year mortgage that is an extra $84,600 you would pay - a pretty expensive penalty for not having great credit scores.

If you have already overcome credit issues and have rebuilt great credit scores, you should probably take a look at your current loans (i.e. mortgage, auto, credit cards, personal loans, etc.). You might qualify to refinance some of those loans at a lower rate and save yourself a bundle on interest.

4. Saving on Vacations

Having great credit enables you to land better credit card offers. Many credit cards offer exciting perks such as 0% interest on purchases for 12 months, generous airline reward miles which can be redeemed for free airfare, or even 0% financing with a specific resort or cruise line. However, the most attractive credit card offers are generally reserved for those consumers who have excellent credit scores. Achieving excellent credit scores can open the doors for you to cash in on some amazing vacation deals.

5. Saving Face

If you have ever applied for financing in the past and been turned down, you can probably recall a vivid memory of the red hot embarrassment which crept its way up your face when you heard the words, "I'm sorry, but your application was denied." Simply put, bad credit can be very bad for your self esteem and your sense of self worth, especially if you are the primary bread winner for your family. It is well worth the hard work required to build better credit scores just for the pay off of the added confidence you will receive once you know you never again have to worry about being turned down due to credit problems.

Earning Better Credit

It is completely possible to start earning better credit right away. However, just because it is possible does not mean that the process is easy. Earning better credit takes a solid plan, hard work, consistency, and patience. The good news is that the sooner you get started, the sooner you will be able to achieve your goal. It may require some hard work to improve your credit, but the amazing payoffs above make it totally worth the effort.  


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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

Building a Credit Score from Scratch

Perform a quick Google search and you will discover that there is no shortage of articles and ideas online clamoring to offer you tips and pointers about how to best manage your credit. You can find videos, podcasts, and even television shows from many self-proclaimed "gurus" who are quick to share their credit secrets with you. Add in the well meaning credit advice you may have received from your family, friends, and acquaintances and before long your head will be spinning with dozens of contradictory credit improvement strategies.

Unfortunately, the truth is that many self-proclaimed "professionals" and even your loved ones can give really bad advice when it comes to your credit. Most credit advice is likely given with a very well-meaning spirit; however, bad credit advice can hurt you even if the damage is unintentional. It is important to be careful whose advice you follow when it comes to your credit, especially when you are building credit for the very first time. Here are 4 tips to help you build great credit from scratch.

Tip #1: Do Not Assume Anything

If you are preparing to build credit for the first time you may genuinely believe that your credit reports are completely blank. However, assuming that this is the case without verification is a mistake. You should begin by checking all 3 of your credit reports from Equifax, TransUnion, and Experian.

You are entitled to a free copy of these reports every 12 months from AnnualCreditReport.com. You can also access your 3 credit reports and 3 scores (if they exist) via a variety of credit monitoring services such as those featured on GreatCredit101.com. You should develop the habit now of checking your credit reports often. Although the Fair Credit Reporting Act does give you the right to expect accurate information to appear on your credit reports, it is up to you to monitor your those reports in order to ensure that they remain error-free.

Credit Expert Advice: If you discover errors on your credit reports then you have the right to dispute those errors on your own or you can hire a reputable credit expert to assist you.

Tip #2: Establish Revolving Accounts

After you have checked your credit reports, if they are indeed completely blank, then you might consider opening a few credit card accounts - aka revolving accounts. Secured credit cards can potentially be a good place to start when you have zero established credit. These types of credit cards typically offer less strict qualification standards when compared with the requirements for unsecured credit card accounts. In other words, qualifying for a secured credit card is generally an easier process even if you have no credit history or damaged credit history in the past.

Credit Expert Advice: Just remember, if you open a credit card account it is absolutely essential that you keep all of your payments on time every single month. It is also a good idea to never revolve a credit card balance from month to month either. If you manage your new account well it has a great potential to help you build positive credit and stronger credit scores.

Tip #3: Establish an Installment Account

Credit scoring models such as FICO and VantageScore like to see that you know how to manage a variety of account types. Consumers with a good mix of accounts showing up in their credit histories will potentially be rewarded with higher credit scores. However, a problem which consumers with no established credit often face is the fact that it can be difficult to qualify for certain types of loans with little to no credit. Your solution? Enter the credit builder loan.

Many local credit unions and some online lenders will offer credit builder loans as a means for their customers to rebuild or build credit for the first time. Credit builder loans are generally issued for a low dollar amount ($500 - $1,000) and the funds are held in a savings account while you make the monthly payments to satisfy the loan. Once the loan has been paid in full the funds are released to you, plus any interest earned. If you managed your account properly then you should have around 6-12 months of on-time payment history showing up on your credit reports.

Credit Expert Advice: If you are thinking about applying for a credit builder loan product be sure to ask the credit union or lender if they will report the account to all 3 credit bureaus. On-time payments are also essential, otherwise your new credit builder loan could hurt your credit instead of helping it.

Tip #4: Ask a Loved One for a Favor

Asking a loved one or a family member to add you as an authorized user to an existing credit card account is another potential strategy which may help you to build credit from nothing. Though it is true that authorized user accounts will not show up on your credit reports 100% of the time, in most cases when you are added as an authorized user to a credit card the account will show up on your 3 credit reports within a few months. Plus, if you are a parent then authorized user accounts represent a great way for you to help your children establish credit without dipping your toes into the very dangerous waters of co-signing.  

Credit Expert Advice: Before being added to any account as an authorized user you should be sure that the account has a flawless payment history and a low or $0 balance. Otherwise, being added as an authorized user could backfire and hurt your credit instead of having a positive impact.


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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

What Is Revolving Utilization and Why Is It So Important to Your Credit Scores?

If you want to have great credit scores then pay your bills on time every month. The previous statement is great advice; however, it is incomplete. Simply paying your bills on time is not enough to achieve and maintain great credit scores. In fact, only 35% of your FICO credit scores are based upon your payment history. The other 65% of your FICO scores have nothing at all to do with how timely you pay your bills.

30% of your FICO credit scores, plus a significant portion of your VantageScore credit scores, are calculated based upon information found in the "Amounts Owed" category of your credit reports. The primary factors considered within this category are largely based upon those little pieces of plastic you carry around in your wallet: your credit cards.

What Is Revolving Utilization?

Revolving utilization is a term used within the credit world to describe how much or rather what percentage of your credit card limits are being used. Your revolving utilization ratio is also known as your debt-to-limit ratio or your credit utilization ratio. It measures how much of your credit limits are in use on each of your credit card accounts and expresses that calculation as a percentage. Here is a quick look at how revolving utilization is calculated.

Credit Limit: $5,000
Balance: $3,500
Revolving Utilization: Balance ($3,500) Divided by Limit ($5,000) = Revolving Utilization (70%)

Why Is Revolving Utilization Considered in Your Credit Scores?

Your revolving utilization is an important consideration in your credit scores for one very simple and important reason: it is statistically predictive of higher credit risk. When you carry outstanding credit card debt on your credit reports you represent a higher credit risk than someone whose reports show paid off credit card balances.

All debt is not created equal. When you take out a mortgage loan or an auto loan, for example, you are opening an installment account. Credit cards, by comparison, are revolving accounts. Installment debt is much less risky for lenders to extend because the debt is generally secured by some sort of collateral (aka your house or your vehicle) which the lender can seize and resell in the event you stop making your payments. However, credit card debt is different.

Because of the nature of credit card debt, it is much more predictive of increased credit risk than installment debt. Think about it. If you begin to struggle financially due to an illness, divorce, job loss, or even poor financial management habits like overspending, which is the first obligation you will probably allow to slide in the event that you have more bills than money at the end of the month? Most likely you will not skip your mortgage payment, your rent, or your auto loan payment if you can help it. Credit card payments, however, are much more commonly skipped in the event of a financial shortage.

Additionally, increased credit card balances might indicate that a financial problem is looming. If a consumer loses his job then it is very common to rely upon credit cards to help finance every day expenses until a new source of income can be secured. As you can easily see, if your reports show that you are revolving balances on your credit cards from month to month, especially high balances when compared with your credit limits, it might make you appear to be a higher credit risk in the eyes of a lender.

The Good News

Although revolving unpaid credit card debt on your credit reports from month to month will almost certainly lower your credit scores, you can currently regain those lost points rather quickly, as soon as you start to eliminate the debt. The other goods news is that the score increase you may be eligible to earn from paying down your credit card balances and lowering your credit utilization can be earned incrementally (instead of an "all or nothing" scenario). In other words, as you pay down your credit card balances little by little you should begin to experience small credit score increases. You do not have to pay a credit card balance all the way down to zero on your credit reports before you can hope to receive a score boost.


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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.


How Many Points Will An Inquiry Lower My Credit Scores?

The fact that inquiries have the potential to lower consumer credit scores is not breaking news. Credit savvy consumers know that letting too many lenders pull their credit reports in a short period of time is a bad idea (with the exception of rate shopping for a mortgage, auto loan, or student loan within a 45 day period). However, the idea that inquiries lower your credit scores a particular number of points is a complete myth.

There is nothing on a consumer's credit report that raises or lowers your scores a fixed number of points. For example, an inquiry does not always lower your score 4 points (or 3, 5, or 6 points for that matter). An on-time payment does not raise your credit score 5 points. A late payment does not lower your scores 30 points. That is simply not the way that credit scores work.

How Inquiries Actually Impact Your Credit Scores

Remember, not all inquiries will have a negative impact upon your credit scores. (CLICK HERE to read The Difference Between Hard and Soft Inquiries for more information.) However, as mentioned above, those hard inquiries which do have the potential to negatively impact your credit scores are not going to lower those scores a specific number of points per inquiry that occurs.

Instead, imagine a set of 5 buckets lined up side by side. Each bucket bears a sign which represents the number of inquiries which appear on a consumer's credit report over a period of the past 12 months.

  • Bucket #1 = 0 Inquiries

  • Bucket #2 = 1-2 Inquiries

  • Bucket #3 = 3-4 Inquiries

  • Bucket #4 = 5-6 Inquiries

  • Bucket #5 = More than 6 Inquiries
    *NOTE: These are hypothetical categories for demonstration purposes only.

Since inquiries account for 10% of your FICO credit scores and the range of FICO scores is 300 - 850 (550 total available points) then there could be the potential for a consumer to earn up to 55 points for her credit scores in the inquiry category. Here's a hypothetical look at how credit score points might be awarded within the inquiry category of a consumer's credit report.

  • Bucket #1 = 0 Inquiries = 55 points

  • Bucket #2 = 1-2 Inquiries = 45 points

  • Bucket #3 = 3-4 Inquiries = 15 points

  • Bucket #4 = 5-6 Inquiries = 5 points

  • Bucket #5 = More than 6 Inquiries = 0 points
    *NOTE: These are hypothetical categories for demonstration purposes only.

While the points listed above are not an exact representation of how many points a consumer's credit score would receive based upon her number of inquiries, the concept is an accurate representation of how credit scores are calculated within the inquiry category. In the example above if Jane Doe had a credit report with 3 inquiries then she would receive 15 points (of the 55 available points within the category) to be added to her overall credit score. However, if Jane Doe had no additional credit inquiries and the 3 inquiries became over 12 months old then she would move to the "0 inquiry" bucket and would receive 55 points instead of the mere 15 points she had received previously. In the case of this example Jane's credit score would increase by a whopping 40 points once the 3 previous inquiries aged out of credit score calculation range and she moved to the "0 inquiry" bucket.

When it comes to inquiries just remember that the fewer hard inquiries the better it is for your credit scores. (Soft inquiries which typically occur when you check your own credit are fine. They never lower your scores.) Now that you understand that individual credit inquiries are not worth a particular number of points, congratulations! You now understand more about your credit scores than probably 99% of the population. 


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About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.


The Difference Between Hard Inquiries and Soft Inquiries

Credit scores, like FICO and Vantage Scores, are based upon a variety of factors. For FICO scores the factors which make up an individual's credit scores fall into 5 categories. The least influential categories, Mix of Credit and Inquiries, each account for 10% of a consumer's credit scores.

While 10% may seem like a small percentage, and it is small in the grand scheme of your credit scores, it is not an insignificant number of points. FICO credit scores range from 300 - 850. That's a total of 550 points that any given consumer has the opportunity to earn for her credit scores. Since the Inquiry Category accounts for 10% of those points there could be a potential 55 points up for grabs (depending upon the score card being used to determine the consumer's scores).

Why Inquiries Appear on Credit Reports

Whenever anyone requests to see a copy of your credit report a record known as an inquiry is placed on your credit report. In fact, most consumers do not realize that the reason that the credit bureaus place inquiries (aka records of credit pulls) on their credit reports is due to the fact that the Fair Credit Reporting Act [FCRA 15 USC Sec. 1681g(a)(3)(A)] requires the credit bureaus to record whenever a consumer's credit report is accessed for a period of at least 1-2 years, based upon the type of inquiry. In an effort to comply with the FCRA the credit bureaus have made a blanket policy that all inquiries will remain on a consumer's credit report for 2 years.

Hard Inquiries

Credit inquiries can be sorted into one of two categories - those that may have the ability to negatively impact a consumer's credit scores and those which do not have the ability to negatively impact a consumer's scores. Inquires which have the potential to cause credit score damage are known as "hard" inquiries. Not all hard inquiries will automatically cause credit score damage and, in special circumstances, numerous hard inquiries might be counted as only "1" inquiry for credit scoring purposes. Below are some examples of hard credit inquiries.

  • Credit Card Applications

  • Mortgage Applications

  • Auto Loan Applications

  • Collection Agency Skip-Tracing

  • HELOC (Home Equity Line of Credit) Applications

Soft Inquiries

Inquiries referred to as "soft" are treated differently by credit scoring models than "hard" inquiries. Soft inquiries are still able to remain on consumer credit reports for 2 years; however, soft inquiries do not have any impact upon credit scores whatsoever. They will not help nor hurt a consumer's credit scores. Here are some examples of soft credit inquiries.

  • Checking Your Own Credit Reports

  • Promotional Inquiries (Think pre-approved credit card offers)

  • Your Current Lenders Checking Your Credit Reports

Inquiries and Your Credit Scores

Consumers often find it frustrating to learn that certain inquiries have the ability to negatively impact their credit scores. The reason that hard inquiries may lower your credit scores is because inquiries can be a reliable indicator of credit risk. In other words, when FICO reviews credit reports samples it finds a trend which demonstrates that people who apply for a lot of credit in a short amount of time are more likely to pay their bills late. People who apply for credit less often are less likely to pay their bills late. Therefore, people with fewer hard inquiries are usually rewarded with higher credit scores.  

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.