Credit tradelines can help you build business credit fast. However, this strategy comes with its fair share of risks.
We help you understand what credit tradelines are, the risks accompanying them, and viable alternatives for building your business credit.
What Are Credit Tradelines?
Tradelines are a term you might already be familiar with.
A tradeline describes any type of financing solution or credit account that reports to business credit bureaus.
If you apply for a loan, open a credit card, report business expenses like your rent or utility bills, or open a store credit account, these are all tradelines.
In the context we’re discussing, it’s defined a bit differently. “Tradeline” in the credit industry often refers to the act of renting an authorized user credit card account on a tradeline.
The keyword to pay attention to here is “renting”. You’re not being added to a card in the way you would if you were to sign on as an authorized user for a credit card of someone you know.
The authorized user tradeline strategy functions a bit differently.
What Are Authorized User Tradelines?
Authorized user tradelines are tradelines that you rent from others in order to build credit fast.
How it works is that you find a reputable tradeline dealer that sells authorized user tradelines.
They’ll provide you with more information about the tradeline, such as the:
- Credit issuer
- Credit limit
- Credit utilization rate
- Payment history
- Account age
- And so on
Once you find one that appeals to you, you then pay a fee to rent it for a limited time. The card usage then gets reported to business credit bureaus, and you benefit from the activity.
Renting authorized user tradelines is legal. Despite that, it doesn’t mean you’re in the clear. Credit card issuers and lenders view the practice as deceptive. The practice is usually against credit card terms and is questionable at best.
Keep this in mind before researching authorized tradeline dealers.
How Much Do Authorized User Tradelines Boost Credit?
Authorized user tradelines can boost credit. However, the effectiveness of this strategy relies on certain conditions.
For example, those who benefit most from renting authorized user tradelines are those with no credit history or existing tradelines.
If you don’t have tradelines and you have limited credit history overall, you could see a boost in your credit score of anywhere from 50 to 250 points in one to three months.
You can also see progress if you don’t have these characteristics. However, your progress likely won’t be as dramatic. You might only see a minor boost in your business credit.
So, what’s the catch? Renting an authorized user tradeline comes with some fairly severe risks as well as some major downsides. It likely isn’t worth it regardless of whether you see major credit improvements or a quick boost.
What Are The Risks of Using Authorized User Tradelines?
The reward of renting an authorized user tradeline is clear: you receive a boost in your credit score that would otherwise require far more work and time to achieve through other means.
What few consider with this enticing of an opportunity is the risk.
What are the drawbacks of authorized user tradelines?
- Drop in Credit Score: Should you be discovered or otherwise removed, your credit score could drop. This is true no matter whether the credit card company or the credit card holder removes you.
- Issues With Lenders: A boost in your business credit score is good, right? As it turns out, lenders aren’t too fond of authorized user tradelines. They won’t be as much of a determinant in approval as credit accounts that are in your name.
- High Costs: Renting an authorized user tradeline can be expensive. In the end, you’re paying for a few months in return for quick credit support when you could be building it affordably through other means.
- Potential Identity Theft: There always exists the potential to fall for a scam. If you give your SSN and other identifying information to a fake authorized tradeline dealer, you could end up with much bigger issues aside from poor business credit.
- Risk of Limited Impact: Most often, authorized user tradelines stay on your credit report. However, they could potentially be removed for varying reasons. If this happens, the risk and cost will have been for nothing.
Authorized user tradelines can help you build credit fast. Still, you risk a lot in the hopes that you’ll see a quick boost in your credit score without experiencing any problems along the way.
There are many safer ways to build business credit and establish credit history.
Authorized User Tradeline Alternatives
Secured Credit Cards
Secured business credit cards are easier to qualify for.
With a secured business credit card, your credit limit is determined by your security deposit.
Many cards, like the Business Advantage Unlimited Cash Rewards Secured Business Credit Card, have a minimum deposit requirement. In this example, you would need to put down at least $1,000.
They help you build credit in your own name. More than that, they generally offer perks. They also typically offer regular credit reviews so you can transition to an unsecured card.
They do have their drawbacks. Mainly, they feature high APR, and the cost is a lot to acquire.
Still, they’re an option if you’re looking for safer ways to build business credit.
Credit Builder Accounts
Business credit builder accounts can be an effective way to build credit. More than that, you don’t lose any money along the way.
Business credit builder accounts are characterized as loans. You receive a loan agreement, and then you begin making payments.
But unlike a loan, the money you pay will be held in a savings account. Once you reach the end of your loan agreement, you get your cash back. Along the way, your on-time monthly payments are reported to business credit bureaus.
It’s a solid way to build credit history and improve your score. It doesn’t come with any interest. With some business credit builder loan providers, you can quit at any time when you need to, without penalties.
The only real downside is that you’re spending money rather than receiving financing. A minor disadvantage is that these services are practically non-existent. The only real business credit builder loan provider to choose from is CreditStrong.
Report Rent and Bills to the Credit Bureaus
A lot of business expenses don’t end up getting reported to business credit bureaus.
This is unfortunate, as these are potential tradelines that are doing nothing for your business.
There are services out there that can turn that around, though. Consider how consumers use services that help them report their rent to boost their credit. There are services that can achieve this for a small business like yours.
Take, for example, eCredable. eCredable reports all eligible third-party business expenses to Equifax. They report business expenses like:
- Rent
- Business insurance
- Phone bills
- Internet
- Gas
- Power
- Water
- And other business services (software subscriptions, etc.)
The more bills you can report, the more tradelines you have working to bolster your credit.
You do have to pay for these services that aid you in adding tradelines to your credit reports. However, you won’t find yourself paying exorbitant fees as you would when renting authorized user tradelines.
You also receive continued support so long as you continue paying your subscription.
Just keep in mind that some payments may not be eligible. Additionally, some payments may be eligible but not accepted by business credit bureaus.
How Business Tradelines Work
Business tradelines work by helping you build your business credit with each successful payment.
Tradelines come in multiple forms. Some tradelines come in the form of traditional business loans. Meanwhile, others come in the form of net 30 accounts offered by vendors.
Starting out, vendor tradelines are going to be your main source of support. They have low qualification requirements that allow small businesses to build credit seamlessly.
As you grow, you can then focus on business credit cards, business lines of credit, and other financing solutions that are more difficult to qualify for.
Of course, knowing how to approach tradelines can make all the difference. A few helpful tips that will prove instrumental in your journey include:
- Be Selective About Terms and Fees: There are plenty of ways to build business credit that aren’t prohibitively expensive or difficult to navigate. Be selective about terms and fees to avoid paying too much or being saddled with interest rates.
- Make Sure Your Options Report to Credit Bureaus: Not every credit solution will report to business credit bureaus. Research your options to confirm they report before applying for them.
- More Vendor Tradelines Produce Greater Results: You should ideally have at least five vendor tradelines to build business credit quickly. Find vendor tradelines with low fees and those that report to at least one major business credit bureau.
- Avoid Personal Credit Problems With EIN-Only Options: Many business owners want to avoid the hassle of using personal credit to fund their business. You can avoid this by seeking tradelines that require your EIN only.
Build Credit With Credit Suite
If you’re looking to build business credit quickly and receive the guidance you need to navigate the process more effectively, start your business credit journey with Credit Suite.
Many small business owners struggle to find funding, especially if poor credit is involved. This can lead them to take out personal loans or apply for personal credit cards to fund their business.
If they can manage to secure funding, they’re often stuck with loans or credit cards that feature high interest rates and poor terms. While this is common, it doesn’t have to be your experience.
The Credit Suite Fundability System is designed for small businesses just like yours. This system provides you with the comprehensive support you need to overcome common business credit challenges and see real results to unlock better financing opportunities.
We achieve this by:
- Establishing a solid foundation that begins with highlighting areas of improvement and offering step-by-step support that will help you improve your fundability.
- Creating a personalized funding plan that fits your business for greater, more effective results.
- Matching you with funding opportunities that you will qualify for from our massive database of vendors, lenders, and credit solutions.
- Offering you one-on-one support when you need it.
- And so much more.
If you’re looking to build business credit but don’t know where to get started, or don’t understand why you can’t seem to advance, the Credit Suite Fundability System was designed for you.
Get started with Credit Suite today to build business credit and access financing opportunities faster.
