First: What are tradelines for business?
A tradeline or trade information refers to the financial obligations that a business has to its creditors, suppliers, service providers, and other vendors that involve payment terms. Simply put, tradelines are any account that appears on your credit reports and includes information about the creditor and their debt.
Tradelines in a business credit sense differ from personal credit tradelines in that they can be comprised of more types of accounts and credit. While there are only two categories of tradelines that appear on personal credit reports (revolving tradelines and installment tradelines), there are five that can appear on your business credit report, according to Experian.
|Trade Supplier Type||Examples|
|Financial||loan, line, lease, credit card|
|Supply||raw materials, building supply, office|
|Services||accounting, marketing, financial services|
|Utilities||telecommunications, gas, water, electricity|
|Transportation||ground, air transport|
💡 Alternatives to buying tradelines:
How do business tradelines work?
In order to more accurately judge your creditworthiness, lenders may look beyond your credit score to check the open accounts on your credit report and gather more information. The information available can include the creditor or lender’s name, current balance, credit limit or loan amount, type of credit, payment history, amount of the last payment, and current account status.
Business credit reports tend to be more detailed than personal credit reports so that lenders and creditors can better assess your creditworthiness. Whereas consumer credit reports will simply take into account credit utilization, business credit reports will list out credit utilization by tradeline and by month. Dun and Bradstreet will even report on how fast you pay your outstanding balances in their Paydex score. This way lenders can more accurately see your financial profile. For example, if your utilization ratio was high for one month, but stayed reasonable for other months, or got paid off quickly, then it would be less of a red flag for a potential creditor.
You will not be able to have a credit score unless you have a credit file. Usually, that requires you to have at least one tradeline that has been open for at least 6 months and reporting to the credit bureaus. However, you can proactively file establish with Experian by signing up for Tillful and agreeing to share your Tillful score.
If you have an outstanding loan, but it’s not reporting to the bureaus, then it won’t count towards your business credit. Tradelines can be an easy way to add to your credit history. Sometimes, small business owners opt to piggyback off someone with a good credit score, for example, by becoming an authorized user on a business credit card. If you do not know anyone with a great credit score, then a tradeline company is an option. However, dipping your toes into buying tradelines can get you into some grey area. Be diligent and do your research before choosing to work with a company that deals with selling tradelines.
Why do small business owners purchase tradelines?
Given that your credit score and the information found in your credit report will ultimately influence access to credit, how much of it is granted, as well as your interest rate, there are understandably many small business owners who seek a ‘quick fix’ to build up business credit in the shortest time possible. However, doing so is not only frowned upon by lenders, but is unethical and could have legal repercussions, for example, being categorized as bank fraud.
One known practice is known as ‘piggybacking’ tradelines. Companies that offer a ‘piggybacking’ service will have creditworthy cardholders or “shelf companies” at their disposal. In order to piggyback, you would have to pay a fee to be added as an authorized user to the established tradelines. Alternatively, you could be added to a tradeline on a shelf company that essentially only exists for the purposes of selling its “credit history.” The "seasoned tradelines" would then show up on your report for some time and boost your business credit score.
Why you shouldn’t buy tradelines to build your business credit
It’s not advised to pay to be added to a tradeline, because the tradeline is not under your control. Sometimes accounts are stolen, from persons dead or alive, or synthesized identities. Not only that, but purchasing tradelines with the intent to deceive lenders is not exactly the best way to win friends and influence people; it could even be considered fraud. If your account is associated with a suspicious tradeline, your credit profile could be red-flagged and potentially shut down. All this trouble doesn’t come cheap either — fees to purchase tradelines could range from $500 to $2000.
The major credit bureaus are keenly aware of such credit-boosting schemes, as are lenders. Consumer credit bureaus have been fine tuning credit scoring models in order to limit the impact of authorized user tradelines. Though there appears to be less activity around preventing business credit fraud, it does seem that lenders, who review your credit and business profiles carefully before deciding whether to extend credit, can often spot the difference between tradelines you opened yourself, and those you paid for.
That said, even if you are able to legally associate yourself as an authorized user to a trusted family member or friend’s business tradeline, it may still not be the best way to build your business credit. As an authorized user, you won’t have any control over the tradeline holder’s behavior. If the primary cardholder or person associated with the tradeline has a high utilization rate or drops out of good standing, these behaviors will negatively impact your credit score.
What you should do instead of buying tradelines to build credit
Buying tradelines to artificially boost your business credit will most likely catch up to you, whether now or in the future. Although such shortcuts can be tempting, it could backfire tremendously and ruin your credit profile, not to mention your reputation with lenders, which are (almost) everything in small business lending.
Instead, we encourage you to kickstart your business’s credit history on your own terms to lay the foundation for a better business credit score. It does take a little extra work, but you can rest assured that you’d be building credit the right way. Here are some ways you can get started.
Open Your Own Tradeline
For one, you could open your own tradeline with a company. Why not take that $2,000 and invest it in a vendor relationship? There are likely many services and/or products that you use to run your business. Between supplies, services, utilities, and transportation, identify your current vendors and see if they would report to the credit bureaus. It is a bit of a manual process, but once you have six months of credit history under your belt, your options really start to open up. You can also opt for a store credit card. Many bigger and more established businesses offer this option. Sam's Club is a popular starter card, as are gas cards.
Ask Existing Vendors to Report to the Credit Bureaus
If you already work with a vendor or supplier on a regular basis, try leveraging that relationship to help you build credit history. To set up a tradeline, you’ll need to get on payment terms and to have the company report to the credit bureaus. Plenty of vendors and suppliers will report your payments to the credit bureaus if you ask. Again, this is a manual process, but the pain is temporary and the payoff is well worth it.
Apply for a Secured Credit Card
One challenge with vendor tradelines is that they need to stay open, otherwise they fall off your credit report. That means that if you end up wanting to switch vendors, your tradeline would close, potentially decreasing your credit history. A good alternative to consider, that doesn’t require you to stay with a vendor to keep your tradeline open, would be to open a secured credit card.
This type of business credit card requires you to deposit money with the credit card company and you are able to make charges on the secured card up to the amount you have deposited. They usually don’t require a good credit score, as the deposit serves as a safeguard against potential default. FNBO has a secured credit card option, with a minimum deposit of $2,200. And of course, we’d be remiss if we didn’t mention the Tillful Card, that also has a $500 minimum. It reports as a financial tradeline automatically to Experian and Equifax, and Dun & Bradstreet when you self-report.
A secured business credit card works the same as an unsecured one (one that doesn’t require a deposit), and often, the credit card provider will allow you to upgrade to an unsecured line of credit once you demonstrate responsible use. Make sure you pay your bills on time to keep your credit card account in good standing! Most secured credit card providers report to the credit bureaus, but just be sure to check before you apply.
Last Word on Buying Tradelines to Build Business Credit
Slow and steady wins the race, and so it goes with building business credit. Avoid taking shortcuts such as buying tradelines and spend time and effort to understand how traditional credit reporting agencies work. Our take on buying tradelines to boost business credit is that the potential to raise red flags with lenders is too much of a risk. With time and consistent effort, a business credit score of 80 and above is within reach.