If you’re trying to understand how to establish business credit, you’ll likely come across the term “tradelines,” as they are an integral part of building business credit.
How do tradelines work, and what’s the best way to use them to establish business credit? We’ll answer both questions here and give you the tools you need to build credit with tradelines.
What Are Tradelines?
Tradelines is industry lingo for accounts that appear on credit reports. It’s most commonly used in the context of building business credit though it can also be used to describe accounts that appear on personal credit reports.
Brief Explanation of Tradelines
Each account listed on your credit report is a tradeline. Most include information about the type of account, the creditor (though the names of creditors aren’t typically listed on business credit reports), the credit limit or recent high balance, current balance, and payment history.
Overview of the Benefits of Using Tradelines To Build Business Credit
Tradelines can be a great way to build business credit. Many suppliers and vendors offer payment terms to their business customers. If the business gets credit through a vendor, pays on time, and the account is reported to their business credit report(s), the tradeline will help build business credit. Of course, it will only benefit business credit scores if the account is paid on time. Late payments can hurt the businesses’ credit scores.
Types of Tradelines
You’ll likely come across terms used to describe different types of tradelines. Here’s what they mean.
What Are Primary Tradelines?
Primary tradelines are tradelines you obtain as a consumer or business owner yourself. In other words, you apply for credit, are approved and the account reports. This is the most basic way to build credit, whether you are trying to establish business credit or personal credit.
What Are Secondary Tradelines?
Secondary tradelines, also known as authorized user tradelines or “piggybacking” are accounts where you are added to someone else’s account. These are not typically used in the context of business credit, but are somewhat popular in consumer credit.
What Are Seasoned Tradelines?
Seasoned tradelines are accounts that have been opened for some time, often a year or more. These are popularized by certain types of credit repair organizations that may sell access to tradelines. Since older accounts can help build credit scores, some individuals see these as a shortcut to building credit, though they are not without risk.
How Tradelines Help Build Business Credit
Business credit scores are heavily influenced by payment history. It’s not unusual for even long-established businesses to have little credit history simply because they don’t have accounts that report. Tradelines are a way to establish business credit and they may also help improve cash flow.
Establish Legitimacy and Improve Creditworthiness
Anyone can check your business credit. It’s very common for suppliers, potential business partners, and lenders that make small business loans to check business credit. Having a solid payment history establishes your business as a good credit risk.
Boost Credit Scores Quickly (Is It Possible?)
Yes it is possible to boost business credit scores fairly quickly by obtaining trade lines and making payments on time. For example:
Customers who used Nav’s Detailed Credit Reports with tradeline reporting saw an increase in business credit scores up to 50% in the first 3 months.*
Add Accounts With Long, Positive Payment History
When building consumer credit, some people benefit from being added as an authorized user to someone else’s account, provided that account is in good standing (on-time payment history and low debt). The authorized user approach is not common when it comes to building business credit, both because it’s less readily available, and because business owners can often get good results on their own by obtaining their own accounts that report to business credit bureaus.
Finding the Right Tradeline for Your Business
It’s not that hard to find business tradelines to build business credit. And the good news is that some of these accounts don’t check personal credit. That means you can start to build new tradelines and business credit even if you have bad credit on the personal side.
Three great places to start are:
Net-30 Tradelines That Report
An easy place to start is with net-30 accounts that report to business credit. You can find out whether the suppliers your business uses report, or you can use this list of easy net-30 vendor accounts to get started.
Business Credit Cards
Most small business credit cards offer a credit line that must be repaid. As a result, most business cards report to at least one of the major business credit bureaus, and some of them report to multiple bureaus. This can be a great way to help build business credit; however you will need good to excellent personal credit to qualify for most cards.
Nav Tradeline Reporting
Nearly 100,000 small business owners today leverage Nav’s Detailed Credit Reports with tradeline reporting. Access the data lenders actually see and always understand your borrowing power on the #1 multi-bureau platform for business credit reports with tradeline reporting to all three major business credit bureaus. Get started now.
Match Industry Type for Maximum Impact
Once you’ve established business credit using the simple methods above, you may want to consider finding tradelines from industry sources specific to your business. For example, if your business is a florist shop, you may want to look for suppliers who offer payment terms for flowers or other supplies you use. This may be helpful simply because other suppliers or financing sources may want to evaluate how you’ve handled similar types of credit before extending payment terms or financing. (However, if those types of accounts aren’t available, focus on ones that are.)
Consider Credit Limit Amount
As your business establishes credit, consider asking for larger credit limits and/or longer payment terms. Both can be beneficial in the long run when building business credit.
Adding Authorized User Tradelines
When it comes to applying for small business loans and financing, both business credit and personal credit can be important. Many small business lenders check the owner’s personal credit, especially when the business is newer, or doesn’t yet have significant revenues or employees. This strategy applies primarily to building personal credit, as it’s less commonly used for building business credit.
Process for Becoming an Authorized User
You can ask a friend or family member to add you to one of their credit card accounts as an authorized user. The account holder will contact their card issuer online or by phone to add the authorized user. As an authorized user you do not have to actually use the card yourself so you can avoid running up debt on the cardholder’s account.
When you are added as an authorized user, that account typically then appears on your personal credit reports. It will likely be identified as an authorized user account but it can still help toward building good credit scores, including FICO scores or VantageScore credit scores. Purchasing tradelines does come with some risks, and it is an additional expense.
Benefits and Risks
The benefit of being added as an authorized user is that you will typically get credit for the entire account history, as long as it appears on your credit reports. For example, if your sibling adds you to their credit card account that they have held for 5 years, you will typically benefit from that entire payment history.
The risk is that any negative information associated with that account will also appear on your credit report and it can be difficult to remove. For example, if your sibling falls behind on payments or if they start carrying a very large balance in comparison to the credit limit ( known as a high credit utilization ratio), your credit scores could suffer.
Ideal Authorized User Tradelines To Add
Accounts with a long established payment history, on time payments, and low balances in comparison to the credit limit make up the ideal authorized user tradelines to add to your credit files.
Purchasing Primary Tradelines
As mentioned earlier, there are companies that offer tradelines for sale. These firms act as a go-between for people with good credit who are willing to allow strangers to be added to their accounts as authorized users (for a fee) and consumers who are willing to pay to be added to those stranger’s accounts.
Vetting Sellers and Avoiding Scams
Be very, very careful if you are thinking about buying tradelines. The costs involved can be significant (several hundred to several thousand dollars) and you don’t have the same level of control that you do if you establish your own credit tradelines.
There is a significant amount you can accomplish without purchasing tradelines from strangers. On the consumer side, you could consider a secured credit card, or a credit builder loan instead. If you’re trying to build business credit, consider vendors that help build business credit or Nav’s detailed credit reports with tradeline reporting.
Reporting and Monitoring Your Tradelines
Once you have opened accounts that will report, you want to make sure that they help your credit.
When Tradelines Will Start Reporting
It may take 30 to 60 days or even a bit longer, for new accounts to appear on your business credit reports. New consumer credit accounts ( like credit cards, mortgages, or auto loans), typically begin reporting the next time the lender supplies information to the credit bureaus. That usually means you’ll see these new accounts within a month or two on your credit reports.
Be patient. If you don’t see new accounts on your business credit reports after 2 months, contact the company that offers the tradeline to find out whether there may be issues matching that account with your business information.
Make sure you pay your accounts on time. Payments that are just a day or two late may affect your business credit reports.
Ongoing Monitoring of Accounts
Establishing business credit isn’t a one and done process. You’ll want to monitor your business credit reports on a regular basis with the major credit bureaus (both for business credit and personal credit) to make sure that the information they contain is accurate and to look for opportunities to continue to build your credit rating.
For example, the majority of customers that use Nav tradeline reporting at least a year continue to see positive business credit score changes**
Tradelines vs. Business Loans
Small business loans can be another excellent way to build business credit. If the loan or line of credit is reported to business credit reporting agencies (many are), it can provide another valuable tradeline.
Pros and Cons of Tradelines vs Business Loans
Business loans are a type of tradeline, but if you are comparing business loans with other types of tradelines such as net-30 vendor accounts, here are some pros and cons to consider:
- Often easy to qualify
- Low cost (or even no cost)
- No long-term loans involved
- Credit limits may be small
- May tie business to specific vendors for purchases
- Not all vendors report to business credit
- Can boost business credit significantly
- Larger loan amounts often available
- Terms may be attractive (depending on type of loan)
- Costs may add up (fees and/or interest rates)
- Some applications are involved
- Not all businesses qualify
When To Use Tradelines vs. Loans
Loans are suitable when your business needs to borrow. The exception is a line of credit. It can be helpful to secure a line of credit for future business needs.
Tradelines can be used to build credit whether or not your business needs a loan.
Tradelines as Part of Overall Credit Building Strategy
If you want to build good business credit, you must have accounts that appear on your business credit reports. Accounts that report are technically considered tradelines, regardless of whether they are accounts with vendors or a bank business loan. However, the word tradeline is often associated with accounts that come from non-bank sources.
Tradelines offer a solid way to help build business credit, and are the logical starting point for many small businesses.
Combining With Other Credit Building Tactics
You can combine tradelines from suppliers and vendors with other types of credit building to establish good business credit. Each can be part of a successful strategy to build credit and manage business cash flow.
For example you can use any combination of:
- Vendor accounts
- Nav’s Detailed Credit Reports with tradeline reporting
- Business credit cards and/or
- Business loans
Pick the right strategy for the right stage of your business. A startup might have trouble getting a business loan, for example, but may qualify for a business credit card and vendor accounts. A more established business that doesn’t have a need for vendor credit may use business credit cards and business loans.
And either type of business can benefit from Nav’s Detailed Credit Reports with tradeline reporting.
Long-Term Business Credit Maintenance
To help ensure good credit in the long run, be sure to regularly monitor your business and personal credit. Look for strategic opportunities to borrow for business growth. And keep an eye on key financial metrics like cash flow to help ensure your business remains financially healthy.
*Based on aggregate data tracking Experian® Intelliscore Plus business credit scores after three months of having Nav tradeline reporting. Results will vary. Scores are calculated from many variables; some users may not see improved scores.
**Based upon the aggregate percentage of Nav customers with positive score changes, nearly 75% of customers continue to see positive business credit score changes across business credit bureaus by keeping their Nav tradeline at least a year.
This article was originally written on September 21, 2023.