Trade Line. MarketCheese

Trade Line — a record in a credit history describing the main detail of a certain loan. The trade line appears when the borrower is applied for credit. It includes all activities related to the account. They are used by the credit agencies to monitor the credit score and define the creditworthiness of the borrower. A closed account remains on the trade line for 7-10 years.

How the Trade Line Works

The trade line appears when the borrower takes a certain credit. It can be a car loan, student loan, or consumer loan. A borrower can have several credit trade lines consecrated on a certain credit. Firstly, comes the credit cards. The second line includes car loans, education loans, and mortgages. Thirdly, there are loans related to the business.

It is necessary to know the difference between the revolving and installment trade lines. Revolving trade line includes information about credit cards. These credits should be paid within the credit limit. Installment trade lines include data on loans of various types. They can be paid out within the long term.

The trade line includes the basic information concerning the credit payments:

Personal data of the creditor;
Account number;
Type of account;
Payment status;
Balance;
Credit limit;
Payment history;
Account status.

All this information is destined to calculate the credit score of the borrower and define their creditworthiness. This information is necessary because if the borrower misses the payments they will be considered unreliable and the bank won’t provide them another credit.

According to this data, the credit bureau creates the payment history. The payment history is a sequence of the payments from the moment of opening the trade lines. It includes the number of owned accounts, the sums of paid out money, the continuance of payments, and also the information about the bankruptcies and debts.

The payment history says a lot about the borrower's trustworthiness and paying capacity. If the banks see that an individual has too many debts and missed payments they may refuse to give another credit. The negative credit information may remain very long but usually, it disappears after seven years.

To avoid debts and missed payments it is necessary to check the conditions of the credit cards before obtaining them. Many cards have a period within which the creditor can overtake the areas without the payment of a percentage. Also, it is necessary to pay attention to the contract that the creditor signs with the bank, when they receive a credit card. Especially, when it comes to the information written in the fine print.

Trade Line and FICO Score

FICO Score is the most well-known credit score that allows lenders to estimate the creditworthiness of a certain borrower. It is created by the Fair Isaac Corporation. This corporation collects the information from the credit bureaus, Experian, Equifax, and TransUnion. It has twenty-five years of experience in the assessment of credit scores, and it is trusted by many credit bureaus.

The FICO system was founded in 1956 by Earl Isaac and Bill Fair. The first FICO Score system was created in 1958. It was based on the idea that the intelligently collected data can help to make the right decisions in business. The system was delivered for credit cards in 1970. The first risk credit score was introduced in 1981. Since that time many credit bureaus take the information about the future borrower from FICO Score.

FICO Score includes the following lines:

Payment history. This line includes information about the debts or paid-out credits.
Amount owed. Current credits.
Length of credit history. Completed and missed payments.
New credit. Credits that were taken within a month and their first payments.
Credit mix. Various types of credits (car loans, business credits, mortgages).

Every line has a certain percentage that is calculated based on the borrower's conscientiousness and timely payments. Then, the company creates the final credit score that creates the borrower’s creditworthiness. To get the credit score the borrower has to have enough information concerning the payments. The account should include the information for at least six months.

Purchase of Trade Line

The borrower can buy credit lines to have a good credit score. It happens, because when they have a thin line, they may not receive a rating from the credit bureau. The borrower may acquire the credit line of a relative or a third-party person. But the financial consultants recommend against this practice because there is a high risk of fraud. The companies offering such services aren’t always reliable and the bank or credit bureau may take the odd line as fraudulent activity and block the score. Also, the acquired credit lines may lead to unnecessary fees and debts.

That’s why it is better to avoid the purchase of trade lines and choose the traditional ways to create a good credit score: pay timely and don't take too much. If the person sees that some credit line was added fraudulently, they may contact the credit bureau and ask to remove it.