The credit bureaus collect information provided by companies that lease or lend money to consumers and businesses including banks, credit card issuers, and credit unions, as well as businesses that are owed money including gym memberships, property rentals, and utilities if they’re sent to a collections agency. Each one of these is a line item on a credit report called a tradeline, and each tradeline has an effect on a person’s or company’s credit score.
- Unpaid tradelines and delinquent accounts can lower a credit score, making it more difficult to get approved for loans, credit cards, lines of credit, rent, etc. and to be hired as an employee if a good credit score is required.
- Tradelines with regular payments and that are in good standing may help improve your credit score, making you more “creditworthy” so you can get a higher amount for a loan, better rates on a credit card, and more. Plus, you are more likely to get approved when you want to lease or rent something.
Tradelines are not set in stone. When a debt is paid off after a final payment on a small business loan, they can be removed from the credit bureau and no longer count. Other lines like credit cards with a balance will remain as long as you keep the account open and don’t pay it off in full.
While there are services that allow you to purchase or rent a tradeline as a way to improve your credit score, this is a grey area and something you should avoid as there could be legal and financial repercussions. The bureaus themselves do not recommend it. Here’s a note from Experian where they warn that it could be considered bank fraud. The FTC even went after a company that was offering tradeline “piggybacking” as a solution. This case settled out of court for over $6,000,000.
So, what can you do with tradelines to increase your chances of getting approved for financing, a lease, or employment? Curious about the causes of more tradelines showing up on your credit report than should be there, or how you can check on what is being reported? We’re here to help. The process is similar for personal and business credit scores, so we’ll focus on business in our example.
How to check what tradelines are reported
To check what tradelines are impacting your business credit score:
- Ask the lender, leaser, vendor, or whomever you’re looking to work with which credit bureau they use to get your credit report from.
- Contact the specific bureau or all three and get a copy of your business credit report from each.
- Open the report and look at each of the tradelines listed.
Not all vendors, creditors, and companies you work with report to all of the bureaus. This is why the tradelines can change on each of the reports. Once you know what is being reported, you can now begin to get the tradeline removed or improve the listing on the report.
If you already know the lender you want to borrow from, getting a better credit score from the bureau they use can help increase your chances of approval or getting better rates.
How to improve your credit score based on tradelines
Not all tradelines mean your credit score is lowered. An established credit card where you have a long history of making on-time payments can show fiscal responsibility. However, if you didn’t pay off a bill or you defaulted on a lease and it isn’t settled, this can negatively affect your credit score.
Here are some of the actions you can take with tradelines to make yourself or your company more creditworthy.
- Have incorrect or outdated tradelines removed.
- Keep positive tradelines on your credit report unless you need to clear them.
- Pay down any debts that you can.
- Ask vendors you make monthly payments to if they can report the payments.
- Increase the total credit available to you without using it.
The first thing to do is to look for any previous delinquent accounts that still exist and get them cleared (either by paying them off or removing them if they’re no longer accurate). You’ll need to contact the creditor and ask them to remove your tradeline if applicable. This is called sending a letter of goodwill.
If the tradeline was filed with a collection agency, try bartering a deal where you pay it in full now versus making payments in the long term. Always be professional and do not place the blame on the collection agency or creditor, because they are not required to remove it, and they are in control. If that does not work, you can dispute any inaccuracy and hope the bureau will side in your favor.
When it comes to your tradelines that show on-time and responsible borrowing, like credit cards you pay off and rarely carry a balance on, these can help your case. For revolving credit that you carry a balance on, make sure you continue to pay down as much as you can, as this shows you have less debt and improves your credit utilization ratio (CUR).
If you cannot pay the balances down right now, but you have a good relationship with the provider of the business credit card or business line of credit, you can ask them to increase the amount of revolving credit available. The most important thing is to not use the extra money available. The higher amount available but not used instantly improves your credit utilization ratio and may help improve your credit score.
One final way to use tradelines to improve your chances for getting approved for financing, leases, etc. is to ask vendors you make monthly payments to if they will begin reporting the payments to the credit bureaus. As long as you continue to make on-time payments and they report the on-time payments, it adds a new tradeline that shows fiscal responsibility, and that can help your approval chances.
Tradelines are the line items that are reported to the credit bureaus and help determine your personal or business credit score. By turning negative tradelines into positive ones via on-time payments, getting inaccurate tradelines removed, and ensuring the good tradelines remain solid, you can keep your credit score strong.
SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
