How to Remove Derogatory Entries From Your Credit Report

How to Remove Derogatory Entries on a Credit Report - PinterestDerogatory entries on your credit report, such as 30-day late payments, 60-day late payments, collections, and more, can seriously damage your credit score. Is there a way to get derogatory items removed from your credit report so that your score can bounce back? Let’s find out.

What Are Derogatory Entries on Your Credit Reports?

The term derogatory simply means negative, so derogatory items on your credit report are any items that reflect negatively on your credit. In other words, they indicate that you have failed to make timely payments on your debt.

Derogatory entries can be divided into two categories: minor derogatories and major derogatories. They both can hurt your credit substantially and contribute to bad credit, but major derogatory items have a greater negative impact on your credit score than minor derogatory items.

Examples of Derogatory Items on Your Credit Reports
Minor Derogatory Entries

30-day late payments
60-day late payments

Major Derogatory Entries

90, 120, 150-day late payments, etc.
Short sales
Public records (bankruptcies)

Read more about derogatory items and how they affect your credit score in this article.

Bankruptcy on your credit reports

A bankruptcy on your credit report counts as a major derogatory entry.

The Good News: You Can Dispute Inaccurate Derogatory Information on Your Credit Reports

As a consumer, you have the right to have your credit reports be accurate, as dictated by the Fair Credit Reporting Act (FCRA).

Therefore, if there is information on your credit reports that is wrong, then you have the right to ask for the incorrect information to be either corrected or removed from your credit reports.

In order to challenge inaccurate information on your credit reports, you can file a direct dispute with the party that furnishes your data to the credit bureaus (e.g. a lender, financial services company, debt collector, etc.) or an indirect dispute with the credit reporting agencies (CRAs).

If you choose to go the route of an indirect dispute, you contact the CRAs about the problematic information and they then investigate the dispute with the company that is furnishing the data.

You can use either type of dispute to ask for the inaccurate derogatory information on your credit report to be corrected or deleted altogether.

The Bad News: You Do Not Have the Right to Have Accurate Negative Information Removed From Your Credit Reports

According to the FCRA, accurate and verifiable negative information can remain on your credit reports for up to seven years.

Unfortunately, that means if the derogatory information on your credit reports is accurate and verifiable, then the CRAs are under no obligation to remove it before the 7-year clock runs out.

Derogatory information that is accurate and verifiable can stay on your credit report for up to seven years.

Derogatory information that is accurate and verifiable can stay on your credit report for up to seven years.

How to Dispute Derogatory Entries on Your Credit Reports

It is free to dispute inaccurate information on your credit reports, and you can do this process yourself. Another option is to hire a reputable credit repair company to do this work on your behalf.

If you choose to complete the dispute process yourself, you can do this in a few different ways:

Go to the CRAs’ websites and file your dispute online

Mail your dispute through the postal services
Contact the CRAs over the phone
Dispute the information directly with the furnishing party

You can submit your disputes online on the CRAs' websites.

You can submit your disputes online on the CRAs’ websites.

Which Dispute Method is Most Effective?

While there is not necessarily a “best” way to file a dispute, often, plaintiff’s lawyers advise consumers to file their disputes with the credit bureaus because this method may leave you in a better positioned to take legal action if the credit bureaus fail to remove the incorrect information.

The Benefits of Disputing Directly With the Furnishing Party

When you file a direct dispute with the company that is furnishing the inaccurate information to the credit bureaus, you are addressing the information at its source. For this reason, the data furnisher has an obligation to correct the error with all of the CRAs they report to.

If a mistake is showing up on more than one of your credit reports, the direct dispute strategy can save you some time since you are only filing one dispute to have the information corrected on each of your credit reports where it is applicable.

Working With a Credit Repair Company to Remove Derogatory Information

Although the consumer credit dispute process is free to use, some consumers may choose to work with a credit repair company to accomplish their goals.

In this case, the credit repair company goes through the dispute process on your behalf.

While a credit repair organization cannot charge you in advance of providing a service as per the Credit Repair Organizations Act (CROA), if they successfully get the information corrected or removed, they can then charge you for this service that has been fully performed.

How Do You Know if You Need to Dispute Incorrect Information on Your Credit Reports?

To find out if there are errors on your credit reports, you need to get copies of your own reports.

Typically, you can do this for free once every 12 months with each of the three credit bureaus. However, due to the COVID-19 pandemic, the CRAs have made it easier to check your credit more often by making it free to check your credit reports every week until April 20, 2022.

To order your free credit reports, go to, which is the only website that is federally authorized to provide your free credit reports, and request them there.

How Long Does the Dispute Resolution Process Take?

The credit bureaus are technically allowed to take 30 days to complete their dispute investigation process, but this rule is decades old. These days, with the technology we have now, it is more likely that your dispute will be resolved in only 10-14 days.

Consumer disputes are usually resolved within two weeks.

Consumer disputes are usually resolved within two weeks.

We hope this article has been informative for those wondering about how to get derogatory information removed from your credit reports! To learn more about how to use credit report disputes effectively, check out our article on How to Fix the Most Common Credit Report Errors.

Want to see the video version of this article, featuring credit expert John Ulzheimer? Watch it below and then subscribe to our channel on YouTube to see more helpful videos about the credit system!


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Are There Negative Items That Can Stay on Your Credit Forever? – Credit Countdown With John Ulzheimer

Negative Items That Can Stay on Your Credit Forever - PinterestIn credit reporting, negative information can only stay on your credit report for a maximum of 10 years for a Chapter 7 bankruptcy and seven years for everything else—right?

The Fair Credit Reporting Act (FCRA) does mandate that the credit bureaus remove negative information from consumers’ credit reports within 7-10 years depending on the type of information. 

While this is true most of the time, there are three exceptions to this rule, meaning that certain negative items could potentially stay on your credit report permanently.

1. If the consumer is applying for a job with a salary of $75,000 or greater.

If a consumer is going to apply for a job that pays $75,000 or more, and the employer uses a credit report as part of the employment screening process, the credit bureaus are allowed to include information on this report about derogatory events that occurred more than 7-10 years ago, such as an old bankruptcy or old collection accounts.

2. If the consumer is applying for a life insurance policy with a value of $150,000 or higher.

If a consumer applies for a life insurance policy with a value of $150,000 or higher, then the credit reporting agencies are technically allowed to include negative information that is more than 7-10 years old on the person’s credit reports.

3. If the consumer is applying for $150,000 or more in credit.

If the consumer applies for credit in the amount of $150,000 or more, this also qualifies as a case where the credit bureaus could include old negative information that normally would not be listed on the consumer’s credit report.

The interesting thing about this exception is that it includes most mortgages, meaning that if you apply for a mortgage today, there is a good chance that you could fall into this category of exceptions to the FCRA regulations regarding negative information.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Should You Be Worried About Negative Items Staying on Your Credit Report Forever?

By now, you may be concerned that derogatory credit items that you thought were ancient history could haunt you in the future, in the event that you apply for a high-paying job, purchase life insurance, or apply for a mortgage.

However, there is no need to panic. While the credit bureaus are theoretically allowed to do this under the FCRA, that doesn’t mean that they choose to do so—and fortunately, they don’t.

Rather than maintaining old information to be used in specific situations, they simply default to applying the same 7-10 year policy across the board.

So if you do apply for a job that pays $75,000 or more, a $150,000 life insurance policy, or $150,000 in credit, you don’t have to worry about old negative items being revealed on your credit report.

Check out credit expert John Ulzheimer’s explanation in the video below. Visit our YouTube channel to see more educational videos on tradelines and credit!


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What Does It Mean if Your Credit File Is “Confused” or “Mixed”?

Pinterest - Mixed Credit FileDid you know that sometimes credit reports can become “mixed” or “confused”? This situation is rare, but it is good to be aware of nonetheless. In a recent Credit Countdown video, credit expert John Ulzheimer explained what these terms mean. Plus, he also describes some other types of rare credit file issues.

Keep reading for more on mixed files and watch the video version at the end of this article.

What Is a Mixed Credit File?

A mixed credit file erroneously contains information from more than one consumer within the file. This is due to a mistake at the credit reporting agency where the matching logic software that is used to match a consumer’s information to their credit file ends up matching the wrong consumer’s information with someone else’s credit file.

If you have a mixed credit file, that means you have someone else’s data in your file that should not be there, whether the information is good or bad. Of course, it can be especially problematic if the incorrect information is derogatory.

The good news is that mixed credit files are extremely uncommon. On the rare occasions when mixed files do occur, it is often between two people who have the same names and addresses and possibly similar Social Security numbers, as may be the case with family members who share a name and live at the same address.

Mixed credit files are also sometimes referred to as “confused” files because the credit reporting system has confused one consumer with another.

What Is a Duplicate Credit File?

A duplicate file simply means that there are multiple credit reports in your name at the credit reporting agency. According to John, having duplicate credit files can be an issue if one of the files generates a credit score that is lower than the others.

Professionals in the credit industry may refer to instances of duplicate files as “dupes” for short.

While duplicate files may occasionally cause problems, the credit reporting agencies have ways to resolve the issue by merging the dupes.

Mixed credit files computer screen

Mixed files occur when the credit reporting system’s matching logic incorrectly attaches one consumer’s information to a different consumer’s credit file.

What Is a Fragmented Credit File?

Another type of inaccurate credit file is known as a fragmented file or a “frag.”

Fragmented files lack some of the information that is supposed to be on your credit report, so only a fragment of your credit file is present.

Missing information on your credit file can, of course, prevent your credit score from being as high as it should be, since you might be lacking important credit history, or it may be otherwise not fully representative of your full credit profile.


Mixed files, duplicate files, and fragmented files are all cases in which your credit report may be inaccurate. It should be stressed that these situations occur very rarely, so they will most likely not apply to you. However, if you find yourself dealing with one of these file types, contact the credit reporting agency so that they can resolve the issue for you.


Head to our Knowledge Center for more articles like this, or visit our YouTube channel to see more videos on tradelines and credit!

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Buying Tradelines: How Many Tradelines Do I Need?

When purchasing tradelines, there are some cases where it is best to get a single tradeline and other cases when multiple tradelines might be more appropriate. To help you decide, we’ve provided some examples for each scenario below.

When to Buy Two or More Tradelines
Thin Credit File (Too Few Accounts)
Balance out derogatory accounts with positive tradelines.

Balance out derogatory accounts with positive tradelines.

Credit scoring models value a mix of several different types of credit accounts, so a thin file with only a few accounts might be limited in what it can achieve. In this case, adding a few tradelines would be ideal because it would help increase the number of accounts in the file.

On the other hand, someone with no credit at all or an extremely thin file can also experience significant benefits from adding one tradeline, since they didn’t have much there to begin with. Of course, more than one tradeline will help even more.

Balancing Out Derogatory Accounts

Accounts that have negative marks such as late payments and collections can really drag down credit. Derogatory accounts need to be outweighed by positive accounts, so one’s credit report should contain at least 2-3 positive tradelines for every negative account. Therefore, multiple tradelines may be necessary to balance out derogatory accounts damaging one’s credit.

Maximizing Results

For those looking to get maximum results, buying several of our best tradelines would be the ideal plan. This becomes increasingly important for people who already have good credit (680 FICO or higher) because it is much more difficult to significantly impact one’s credit report with a file that is already relatively strong.

There is also a point of diminishing returns on tradelines for those with already high credit scores, so situations like this require purchasing the absolute best quality tradelines in order to achieve positive results.

In other instances, the goal may be extremely important and the risks of failing to meet that goal may be significant. In situations where the outcome is very important, we recommend using the maximum strength possible.

Of course, the risk is that there are no guarantees on what the results will be, but at least you can be sure that you received the maximum benefit possible from tradelines. The rest is up to you.

Posting to a Specific Credit Bureau
protect against non-postings in time-critical situations with additional tradelines

In time-critical situations, purchasing additional tradelines will help protect against potential non-postings.

If it is important for a tradeline to post to a specific credit bureau, this is a good time to consider purchasing more than one tradeline.

Unfortunately, banks and credit card companies are not always 100% accurate in their reporting process, so while we guarantee that each tradeline will post to at least any two out of the three major credit bureaus, we do not have any control over which of the three bureaus the tradelines will post to.

Because there is always a degree of uncertainty with tradelines, if you are looking to get a tradeline to post to a specific bureau, purchasing extra tradelines will help provide the added security you need.

Important Time-Sensitive Events

Similarly, if something important and time-sensitive is going on that depends on the tradelines posting, the safest bet is to get more than one tradeline. Again, we do offer a money-back guarantee in the event that a non-posting occurs, but the fact is that non-postings do occasionally happen due to inconsistent reporting by the banks.

In time-critical situations, there may not be time to exchange a non-posting tradeline for a new one and wait for the new one to post. If you are counting on tradelines to post within a certain time frame, investing in additional tradelines will help hedge against potential non-postings.

When to Buy One High-Quality Tradeline
It's usually best to purchase one high-quality tradeline if there are budget constraints.

It’s usually best to purchase one high-quality tradeline if there are budget constraints.

Budget Constraints

If your budget is constrained to a certain dollar amount, it is usually better to purchase one high-quality tradeline rather than dividing that amount between two tradelines that are not as high in quality.

This is because credit scores consider both your average age of accounts and the age of your oldest account. A single account with lots of age has more potential to increase those numbers, while two accounts with less age may not offer as much improvement or might even dilute the credit file.

Here is a hypothetical example to consider. Let’s say your current average age of accounts is 2 years. If you were to spend the same amount of money in either case, would it be better to buy two tradelines that are both 4 years old, or one tradeline that is 8 years old?

If you decided to buy the two 4-year-old tradelines, this would increase your average age of accounts to about 3 years ([2 + 4 + 4] / 3 = 3.3) and your oldest account would be 4 years old.

On the other hand, if you were to buy one 8-year-old tradeline, this would bump up your average age of accounts to 5 years ([2 + 8] / 2 = 5) and your oldest account would be 8 years old.

In the second scenario, you end up with a higher age for both of these important credit history factors. Be sure to check out our tradeline buyer’s guide and tradeline calculator to help determine the best plan of action for your situation.

Current credit file
After adding 2 4-year-old tradelines
After adding 1 8-year-old tradeline

Average age of accounts
2 years
3 years
5 years

Age of oldest account
2 years
4 years
8 years

One high-quality tradeline is best for very thick files.

It is more difficult to affect the average age of accounts when there are many accounts, so one high-quality tradeline tends to be the best choice for very thick files.

Extending the Age of Your Oldest Tradeline

The age of the oldest account in your credit file is a very important data point. If the goal is simply to extend the age of the oldest tradeline in the credit report, then of course only one tradeline is needed. The tradeline just needs to be older than the oldest account that is currently on file, but obviously, the more age the better, so we recommend going significantly older.

Very Thick File (15 or More Accounts)

A very thick file with a large number of accounts will “dilute” the power of any tradelines that are added. Since there are so many tradelines already in the file, it will be more difficult to affect the average age of accounts. Therefore, one premium tradeline with a lot of age and a high credit limit will be a better fit for a very thick file, rather than multiple less potent tradelines.

Focusing on Credit Limit

Some consumers are less concerned with the age of the tradelines and more concerned with the credit limit for their specific circumstances. If a high credit limit is the main priority, it will usually make more sense to purchase one tradeline with a high credit limit rather than multiple tradelines that have lower credit limits.

If a high credit limit is the goal, usually one tradeline is enough.

If a high credit limit is the goal, usually one tradeline is enough.

The strategy on this topic may vary depending on what you are trying to accomplish and what your goals are, but in general, if you can accomplish the goal with one tradeline, that would probably be the better option.

Modest Goals

Depending on what a person’s goals are, they may not need to get the maximum results possible. For smaller goals, one tradeline may be all they need. However, it is always best to try to overshoot the goal in order to have some extra insurance in making sure the goal is truly achieved.

No Credit File or an Extremely Thin File

As we mentioned previously, adding a few tradelines to a thin credit file is ideal because it greatly increases the number of accounts in the file.

Adding one tradeline to a very thin file can make a big difference.

Adding just one tradeline to a very thin credit file can make a big difference.

However, it’s also important to keep in mind that someone with no prior credit history or an extremely thin file may still find value in buying just one tradeline, since adding one account to a baseline of zero or one existing accounts is still a significant change.

As an example, adding one tradeline to a credit report that previously only had one account in it represents a 100% increase in the number of accounts in the file! This not only adds valuable age and payment history but also impacts the “credit mix” factor in credit scoring.

Key Takeaways on How Many Tradelines to Buy

To summarize when you should consider purchasing a single tradeline versus when you should consider investing in more than one tradeline, we have included the main points of this article in the table below.

When to Buy Two or More Tradelines
When to Buy One High-Quality Tradeline

If you have a thin credit file (too few accounts)
If you have budget constraints

If you need to balance out derogatory accounts
When you want to increase the age of your oldest tradeline

When you want to maximize results
If you already have a very thick file (15 or more accounts)

When you need a tradeline to post to a specific credit bureau
If you want a high credit limit

If you need a tradeline for an important, time-sensitive event
If you have modest goals

If you have no credit file or an extremely thin credit file

If you are wondering how many tradelines you need, remember that the power of tradelines is always going to be relative to your current credit file and it is important to consider what will be the best fit for your specific situation.

In some situations, it may be important to maximize results using multiple powerful tradelines, such as when you are trying to accomplish a major goal or when there are serious hurdles to overcome. In other cases, one good tradeline might be all you need.

Whatever the case may be for you, it is always best to understand how tradelines work first and foremost and avoid making any common mistakes.

In simplest terms, the safest option is always to overshoot your goal and stick with the highest quality tradelines within your budget, and remember that in most cases, age is key. If budget is a big concern, then it’s usually best to just buy one of the highest quality tradelines your budget allows.

What are your thoughts on this article about how many tradelines to buy? We would love to hear your feedback, so leave a comment below!

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Snowball vs. Avalanche: What Is the Best Way to Pay Off Debt?

Snowball vs. Avalanche: What Is the Best Way to Pay Off Debt? - Pinterest graphicIf you’re like most Americans, you probably have more debt than you would like to have. Almost 60% of Americans say they feel “weighed down” by debt, according to a survey by LendingTree. It’s no surprise that a majority of consumers share this sentiment considering that the Federal Reserve Board (FRB) says that Americans collectively owe a total of over four trillion dollars in debt as of August 2020 (that’s $4,123,499,210,000, to be precise).

Between mortgage loans, auto loans, student loans, home equity lines of credit, credit cards, personal loans, and more, Business Insider reports that the average American has $51,900 in debt.

Naturally, many people want to pay off their debt as quickly as possible. Once you are done making those hefty monthly payments, you can use your money to work for you instead of sending it out the door to your lenders.

If paying off debt is one of your financial goals, then this article is for you. We’ll be breaking down two of the most popular and effective ways of paying off debt: the debt snowball and the debt avalanche.

The Debt Snowball Method

The “debt snowball” strategy was popularized by Dave Ramsey and it is perhaps the most well-known technique for paying down debt.

How the Debt Snowball Works

The process of the debt snowball method is relatively simple. Here’s how it works:

Keep making the minimum payments on all of your debts.
Take a look at your budget and see if you can free up some funds by cutting spending or increasing your income.
Send as much money as you can toward your smallest debt until you have completely finished paying off that debt.
Once you have paid off your smallest debt, direct the money that was previously assigned to paying off that account to the next smallest account.
Repeat this process for each of your accounts in order of lowest to highest balances until you have no more debt!

Pros of the Debt Snowball Method

The debt snowball plan is not necessarily the most economically efficient, as we will discuss below, but there is a reason why it is still one of the most popular ways to gradually pay off debt.

The “debt snowball” strategy is the most popular and statistically the most successful method for paying down debt.

The “debt snowball” strategy is the most popular and statistically the most successful method for paying off debt.

You get to enjoy the satisfaction of “small wins” as you pay off your lowest balances.

The effectiveness of the debt snowball approach lies in behavioral psychology rather than mathematical calculations.

When you use your resources to tackle your least intimidating debt first, it won’t be long before you can celebrate a small victory, and then another, and then another. This provides encouragement and motivation to keep going, which is a vital factor in the long-term sustainability of your plan.

You can quickly make progress on freeing up cash flow to direct toward other debts.

Every time you knock out a small debt, you can use the money that you were putting toward that bill to attack the next one, increasing your momentum with each debt that you finish paying off.

The debt snowball has the highest success rate.

Many financial experts recommend the debt snowball option because statistically, consumers are more likely to stay on track with their goals when they use the snowball approach, which is due to its powerful psychologically motivating effect.

Cons of the Debt Snowball Method

You will pay more in interest charges.

With the debt snowball option, since you are attacking your debts in order of their outstanding balances without considering their interest rates, it is likely that you will end up paying more in interest than if you were to work in order of the debt with the highest interest rate first to the debt with the lowest interest rate last.

It will likely take longer to pay off your debt.

Similarly, since you will be starting small and paying more money in interest overall, it could take longer to become debt-free than if you were to use a mathematically more efficient method.

The Debt Avalanche Method
The debt avalanche method is technically the faster and more economical approach to getting rid of your debt.

The debt avalanche method is technically the faster and more economical approach to getting rid of your debt.

The debt avalanche, on the other hand, is all about the numbers. This path aims to reduce the amount of interest you pay so that you can pay off your debt faster and pay less money overall.

How The Debt Avalanche Works

The debt avalanche is very similar to the snowball strategy. The only difference is the order in which you pay off each debt. The process follows these steps:

Keep making the minimum payments on all of your debts.
Send as much money as you can toward the account that has the highest interest rate.
Keep doing this until the account is paid off.
Take the money that was going toward that account and add it to your monthly payment toward the account with the second-highest interest rate until you eliminate the balance on that debt.
Repeat this process until your debt is gone!

Pros of the Debt Avalanche Method
Without the psychological motivation of “small wins” at the beginning, the debt avalanche plan tends to be less effective because it is harder to stick to than the snowball method.

Without the psychological motivation of “small wins” at the beginning, the debt avalanche plan tends to be less effective because it is harder to stick to than the snowball method.

You will pay less in interest.

Since you are tackling the debts with the highest interest rates first, you will be able to wipe out the most expensive debt more quickly than if you were to prioritize the size of the balance instead.

The debt avalanche helps you get rid of your debt sooner.

Again, starting with the highest interest rates means you won’t have to deal with those high interest charges continually piling on as you pay off other accounts. Less interest means a lower total amount owed, so you could reach your goal faster with this method.

Cons of the Debt Avalanche Method

It might take a while to feel like you are making progress.

With the debt avalanche, you may not be starting with a small debt, so you might not get the chance to celebrate some small wins early on that you could get with the snowball approach. This is especially true if your higher interest rate debts are also your accounts with high balances. It could take a long time to finish paying off just one account.

It doesn’t account for emotions about money and debt.

While the debt snowball is meant to keep you going by providing quick emotional boosts, the debt avalanche focuses purely on the numbers. Calculations of how much you could save on interest may not be as exciting or motivating as the prospect of knocking out smaller accounts.

The fact that people tend to have strong feelings about money is not necessarily accounted for in the debt avalanche plan.

The fact that people tend to have strong feelings about money is not necessarily accounted for in the debt avalanche plan.

The debt avalanche is harder to stick to long-term.

Due to the above factors, the debt avalanche method can feel discouraging to some consumers. If it’s hard to see the dent you are making in your debt, you are more likely to give up on your goals and land right back where you started. As we mentioned above, the debt snowball tends to have a higher success rate than the debt avalanche.

Snowball vs. Avalanche Debt Payoff Calculator

Perhaps by this point, it is still not clear which of these two methods would work best for you. One tool that may be useful in making your decision is a calculator that can show you how much you will pay back in total and how long it will take you to get out of debt with both methods so that you can compare the results side by side.

To use a snowball vs. avalanche calculator, such as this one from MagnifyMoney, you will need to have the following information on hand to put into the calculator:

A debt snowball vs. avalanche calculator can help you determine the best approach for you.

A debt snowball vs. avalanche calculator can help you determine the best approach for you.

The balance of each of your accounts
The APR of each account
The amount of the minimum monthly payment you make toward each account
The total dollar amount that you can afford to pay toward your debt every month

Once you input your information and get your results from the calculator, you will have a clearer comparison of the two methods in numerical terms.

A Hybrid Approach

A third option is to use a combination of the two strategies to get the benefits of each.

For example, you could first focus on accounts with significantly higher interest rates than your other accounts, such as credit cards, like you would with the avalanche method.

Then, once you are finished with those, you could proceed to pay off the rest of your accounts with lower interest rates in order of smallest to largest outstanding balances. Since these accounts will all have relatively low interest rates, this way, you can still hit some of those smaller goals without sacrificing too much money in terms of interest.

Another potential benefit to this approach is that focusing on paying off your credit cards first can help your credit score rebound sooner, since revolving debt balances are far more damaging to your credit score than installment debt balances.

Summary: What Is the Best Way to Pay Off Debt?

When it comes to paying off debt, there is no easy, one size fits all answer. The best path forward depends not just on the nuts and bolts of your finances, but also your personality, behaviors, and motivations.

The debt snowball is a popular option that works well for many because the quick feeling of success each time you pay off a small debt can help keep you inspired to stay on track. The downside of this method is that you could pay more in interest and spend a longer period of time chipping away at your debt.

If you would rather minimize interest charges and speed up the process, and you don’t need those psychological boosts, then the avalanche method may work for you. However, keep in mind that not everyone has the discipline to stick with the debt avalanche for as long as it takes to see results.

You can also get creative and modify or combine the two approaches in a way that makes sense for your financial situation and your personality.

In addition, your debt payoff plan—no matter which method you choose—will only help you if you commit to getting and staying out of debt. If you are still spending too much and accumulating more debt, then you won’t get anywhere, even with the most powerful debt payoff strategies.

Ultimately, the best way to pay off debt is to choose a plan that you can stick to. The most important thing is to be able to reach your destination of becoming debt-free, regardless of which path you choose.

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Do you need good credit to start a business?

A lot of time, effort, and energy go into starting a business. Typically, you have to map out a business plan, prepare a variety of business and legal documents, and maybe even hire other people. This can take a lot of planning and careful consideration. In addition to these steps, you also want to set up your business for financial success. An important question you may be asking yourself at the outset of this new venture is “Do I need good credit to start a business?” The technical answer is “no.” You can start a business without good credit. The long answer is that good credit will enable you to do more with your business, potentially allowing you to scale and grow your business more quickly and with less risk.

No Credit Requirement at the Outset

The act of starting your business may not involve credit at all. This will depend upon your business plan and the type of service or goods you will be provided, along with the expenses you will encounter and the capital you have available when you start. But just as an example, a simple service-based business (like, say, a solo web designer) could be formed and function without credit.

Truly “starting” a business boils down to choosing your name, selecting your entity type, filling out the basic forms, and applying for any licenses required by your selections. The Small Business Administration has tips for each of these tasks. If you create a business that is a new separate entity (like an LLC, for example) you will definitely want to open a business bank account so that you can keep the business’ funds separate from your personal funds. Sole proprietors and partnerships can do this too, but it may not be as legally urgent as for other business types. The bank account can be a simple business checking account without any accompanying credit lines. If so, approval should be fairly easy and not require a strong credit history.

These steps alone may be sufficient for small, simple businesses to get up and running. If your business is more complex and needs more capital than currently available at the time you start the business, then credit may be necessary from the start.

Business Credit Can Help You Grow or It Can Hold You Back

Launch and scale: Credit can be essential for some businesses, and the core business idea may never come to fruition without credit. Even if a business does get off the ground without credit, it may not be able to adapt and take advantage of critical opportunities. Say a rare business opportunity becomes available—a new partnership, or the chance to get into a new market, for example. These moves often require more capital. Being able to quickly access more funding through a credit line could be a game-changer. Unfortunately, the SBA reports that in one survey, 27 percent of respondents said that they did have the funding to adequately support and grow their business. You do not want to be in that position when a rare opportunity presents itself.

Extra benefits: We have been talking about business credit in a general sense but one unique benefit of credit cards is the fact that many offer rewards. If your business has significant expenses, and you can put most of them on credit cards, you have the potential to rack up a lot of credit card rewards. Of course, you will want to pay the balances in full and avoid interest costs. But if you can do that, then the rewards can effectively become increased profits for your business. The rewards might even provide new equipment for your business to help it grow while not costing you anything out-of-pocket.

Increased separation from personal credit: We touched on this before when discussing bank accounts, but you will want to build a separation between your personal financial identity and your business financial identity. In some cases, this is legally essential for bank accounts to ensure that you do not “commingle” funds. But a similar principle applies to credit. Early on in the life of a business, creditors may use your personal credit history in determining whether to give credit to your business, and they may require a personal guarantee on financial commitments. This means that you and the business will be liable for the debt. In fact, on most “small business credit cards,” this is always a requirement.

However, other credit products may not require a personal guarantee, therefore giving you access to pure business credit. One factor in getting approved for such products will be the credit history of the business (including the business’own credit score), so it is important to build a good financial and credit history in the business from day one. Note: building a business credit score typically requires an Employer Identification Number (EIN). Having an EIN is not required for all business types, but can be applied for. Therefore, if you have a type of business not required to have an EIN but want to build your business credit, it may make sense to apply for an EIN.

The dangers: The dangers of business credit are not much different than the dangers of personal credit, but the stakes may be higher. If you have access to credit personally and access to credit through your business, that could lead to a substantial total credit limit. If you were to take a significant business risk or manage your credit improperly, there is the potential to face an astronomical level of debt without the income necessary to pay it off. And depending on your business, your credit decisions may not just impact you but could affect your employees too.


You do not need good credit to start a business. In fact, there is no requirement that a business use credit at all. However, for some business models, credit will be essential. Early on, creditors will use your personal credit history in determining the terms of any credit they offer the business. But over time, you can put separation between your personal credit and your business credit, which has several advantages. At the end of the day, the same general principles of smart credit management in personal finance apply to business finance. Should you need any assistance with your business or personal credit, the NFCC is here to help.

The post Do you need good credit to start a business? appeared first on NFCC.

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A Spotlight on the Staggering Financial Inequalities in America

We are at a crossroads in American history.

With the recent killings of yet more Black people at the hands of police, the long-held rage and grief of America’s Black communities have boiled over into nationwide civil unrest and protests demanding justice, equality, and the end of police brutality.

As our nation collectively reckons with its history of slavery and its legacy of violence toward Black people that continues today, we want to shed some light on the economic inequalities faced by Black Americans.

We have already written at length about inequality in the credit system, the shady history of the credit reporting agencies, and the ethics of tradelines, but this time, we feel that it is necessary to focus specifically on racial inequities in our economic systems, with an emphasis on the stories and experiences of Black individuals. 

We do not pretend to have all the answers or solutions to these large, structural issues that are deeply embedded within the fabric of American society. However, we feel that it is our responsibility to provide educational resources on these topics so that each citizen can understand the issues we are facing and make informed decisions about how to combat inequality in our own lives and in our society as a whole.

The Racial Wealth Gap

Get ready for this staggering statistic: according to data from the Federal Reserve, the typical Black household has only about 10 cents for every dollar of wealth held by the typical White household.

According to the U.S. Joint Economic Committee, Black Americans are more than twice as likely to live below the poverty line as White Americans, with Black children, in particular, being three times as likely to live in poverty as White children.

Not only that, but the chasm between Black and White household wealth, instead of getting smaller, is actually getting wider and wider over time, even for Black Americans with higher education.

This chart from the Center for American Progress shows the racial wealth gap widening over time.

This chart from the Center for American Progress shows the racial wealth gap widening over time.

Origins of the Racial Wealth Disparity

The racial wealth gap in America has existed from the moment that the first Africans were taken from their land and brought to the colonies in 1619.

For over two and a half centuries, enslaved Black people were used as a source of wealth by White enslavers who claimed them as property, but they had no way of accumulating wealth for themselves. They were forced to work for nothing and were not allowed to keep any of the wealth they generated.

Even after slavery was legally abolished in 1865, that certainly did not create a level economic playing field.

For at least another century, various laws and policies continued to block Black people from attaining wealth, and discrimination is still pervasive today.

Government-Sanctioned Housing Discrimination

Take the National Housing Act of 1934, for example. Passed in the wake of the banking crisis that kicked off the Great Depression, this act created the Federal Housing Administration (FHA). The FHA made it easier for White Americans to afford homes by providing mortgage insurance to protect mortgage lenders from borrower defaults.

Unfortunately, the FHA outright refused to insure loans to Black consumers and even consumers who wanted to live in areas near Black neighborhoods. This practice of “redlining” not only restricted where Black families could buy homes, but it also affected the types of funding they could get and the terms of those loans. (Without FHA insurance, Black home buyers were forced to accept inflated prices and fees as well as predatory contracts pushed by deceitful contact sellers.)

Furthermore, it discouraged investment and development in primarily Black areas, which led to the decline of many communities and of property values in those areas.

While many White families were buying up houses using government-sponsored, low-interest mortgage loans, Black families did not have this luxury, which meant they were shut out of an important opportunity to accumulate wealth in the form of home equity.

Ultimately, the racial wealth gap cannot be explained or fixed by the behaviors or decisions of individual Black people. It is the result of 400 years of structural racism and oppression in America, and solving it likely requires dramatic and large-scale policy changes.

The Federal Housing Administration insured mortgages to help make it more affordable for consumers to obtain mortgages and purchase homes—but only for White Americans.

The Federal Housing Administration insured mortgages to help make it more affordable for consumers to obtain mortgages and purchase homes—but only for White Americans.


The rate of unemployment of Black people is twice as high as the unemployment rate of White people.

Racism and prejudice undoubtedly play a significant role in this, as research has shown that Black people today still face the same amount of hiring discrimination that they did in the 1980s.

The Center for American Progress wrote the following in 2011, when the economy was starting to slowly recover from the Great Recession; however, the information unfortunately still holds true today in 2020, especially in the midst of the COVID-19 recession:

“The unemployment rates for African Americans by gender, education, and age are much higher today than those of whites, and these unemployment rates for African Americans rose much faster than those for comparable groups of whites during and after the Great Recession. The unemployment rates for many black groups in fact continued to rise during the economic recovery while they started to drop for whites…It is now painfully clear that African Americans are still facing depression-like unemployment levels.”

“…there are unique structural obstacles that prevent African Americans from fully benefiting from economic and labor market growth—obstacles that deserve particular attention when unemployment rates for African Americans stand at the highest levels since 1984.”

In addition, Black workers are more likely than White workers to have low-wage jobs, which leads to Black families having lower average incomes than those of White families. White annual household incomes are about $29,000 higher than Black annual household incomes.

People of Color Are Bearing the Brunt of the Recession 

It is impossible to ignore the effects of the economic recession that has begun as a result of the COVID-19 pandemic, which is disproportionately impacting Black and Hispanic communities, just like the Great Recession did in 2007 – 2009.

Job Loss

Pew Research Center reports that Hispanic and Black adults are being the most affected by the loss of millions of jobs due to the coronavirus.

This is primarily because people of color are overrepresented in many low-wage jobs within the industries that have had to shut down during the pandemic, such as food service, retail, and hospitality. These are also jobs that cannot be done remotely. Consequently, Black employees are especially vulnerable to being laid off.

Furthermore, not only are Black workers often the first to be let go during recessions, but they are often the last to be re-hired when the economy recovers. According to the Center for American Progress, it’s important to recognize “…that black labor market prospects are hit much harder by recessions and that it takes longer for African Americans to recover from an economic downturn.”

Business Closures

A study from the Stanford Institute for Economic Policy Research on the impact of COVID-19 on small business owners revealed that the percentage of Black-owned small businesses that have been forced to close due to the pandemic (41%) is more than twice the percentage of White-owned businesses that have closed for the same reason (17%).

The Paycheck Protection Program, which is part of the CARES Act, was intended to “provide small businesses with funds to pay up to 8 weeks of payroll costs including benefits.” However, some have pointed out that the program is likely to be perpetuating racial inequality by giving the role of distributing funds to banks that have a demonstrated history of discrimination against Black borrowers.

Housing Insecurity

Evictions have been temporarily paused in many areas since many renters have lost their jobs during the pandemic and can not afford to pay rent. Once these eviction bans are lifted, however, it is predicted that Black and immigrant tenants will make up the majority of those displaced by the coming housing crisis.

According to Politico, “Black and Latino people are twice as likely to rent as white people, so they would be most endangered if the protection from removal is ended.” Furthermore, Black and Latino households usually spend a greater portion of their income on rent than White renters. Any disruption in income could spell disaster for these vulnerable groups of tenants.

Poor women of color, specifically, are much more vulnerable to eviction than any other demographic group, with one in 17 being evicted each year, compared to only one in 150 for poor White women.

The consequences of having an eviction on your record are severe. It can be nearly impossible to find safe and affordable housing since many landlords refuse to rent to tenants who have previously been evicted. This leads to many low-income Black women being forced into homelessness and dangerous living conditions.

If the landlord passes the bill for unpaid rent onto a debt collector, then it becomes a collection account, which shows up on your credit report and can heavily impact your credit for up to seven years. Similarly, if a landlord seeks a court judgment against you for unpaid rent, the judgment could appear in the public records section fn your credit report.

Credit Difficulties

With less wealth and lower average incomes than White households, Black and Hispanic households are less equipped to weather financial emergencies without getting behind on bills, which is the number one cause of bad credit.

A recent Pew Research study determined nearly half of Black adults surveyed reported that they are worried about not being able to pay all of their bills over the next few months.

For a list of tips and resources on getting through the COVID-19 pandemic with your finances and your credit intact, even if you are having a hard time paying your bills, read “How to Protect Your Finances and Credit During the Pandemic.”

Medical Debt

It is well known that many Black communities deal with higher pollution levels and “food deserts” where access to affordable, healthy foods is often not possible.

And since Black Americans are more than twice as likely to be in poverty than White Americans, they are therefore more likely to experience food insecurity, inadequate nutrition, a lack of healthcare, and the stress of constantly worrying about money on a daily basis.

All of the stressors listed above have been shown to have lifelong consequences on the physical and mental health of poor people, including strong negative effects on the immune system. This means low-income individuals (especially low-income people of color, who also suffer from the effects of “weathering”) are less able to fight off infections and more likely to live with various chronic illnesses that can make the coronavirus more deadly.

As we mentioned, Black workers are overrepresented in lower-wage jobs and more likely to get laid off, which puts them at risk of losing their health insurance coverage or, often, not even having access to health insurance in the first place.

When you put all of these factors together, it creates the perfect storm for Black individuals to get sick with COVID-19, suffer more severe complications that could lead to being hospitalized, and not have the resources to cover extremely expensive hospital stays.

Even if the illness is less severe for some, who may be able to recover after staying at home for a few weeks, they still have to deal with the high cost of missing work while sick and isolated at home. Losing out on even one paycheck can be devastating for low-income households who have not had the option of building up savings.

Naturally, when you combine serious illness with no health insurance and no safety net, the result is massive medical debt. Research has shown that Black Americans are 2.6 times more likely to have medical debt than White Americans and are also nearly twice as likely as White people to be contacted by debt collectors and to borrow money due to medical debt.

When consumers cannot afford to service their medical debt, or if they have to stop paying other bills in order to be able to make their medical debt payments, they will inevitably end up missing payments, defaulting on debts, having accounts go into collection, and possibly even filing for bankruptcy in extreme cases.

All of these derogatory items are severely damaging to one’s credit and therefore tend to make credit more expensive and less accessible to consumers who struggle with medical debt. This impact is long-lasting since negative information stays on your credit report for seven years or even up to 10 years in some bankruptcy cases.

For those who cannot afford adequate healthcare, getting sick depletes scarce resources, limits future opportunities, and stunts financial growth for many years, thus continuing the downward financial spiral.

Racial Disparities in the Credit System

Since race and ethnicity are not legally allowed to play a role in credit scores, you might think that consumers of all races would have equal opportunity in the credit system. Unfortunately, however, this is not the case.

If you have read our article called, “What Happened to Equal Credit Opportunity for All?” then you might remember these surprising facts from a report by the Federal Reserve Board:

Black and Hispanic consumers, on average, tend to have lower credit scores than non-Hispanic White and Asian consumers, even after controlling for other variables such as personal demographic characteristics, location, and income.
Black borrowers pay higher interest rates on auto loans and other installment loans than non-Hispanic White borrowers who have the same credit score.
Black and Hispanic consumers experience higher denial rates than other groups with the same credit score.

In addition, the Consumer Financial Protection Bureau has also found racial patterns in their reports on credit invisibility.

Black and Hispanic Americans are more likely to be credit invisible (lacking a credit record) than White and Asian Americans—15% of Black and Hispanic consumers lack a credit record, compared to just 9% of White and Asian consumers.
Black and Hispanic consumers are also more likely than White consumers to have credit records that cannot be scored by widely used credit scoring models—13% of Black adults and 12% of Hispanic adults are unscorable, versus only 7% of White adults. (The Consumer Financial Protection Bureau (CFPB) did not provide the percentage of Asian consumers who cannot be scored but said that “the rates for Asians are almost identical” to those of White consumers.)

Since credit invisibility and unscorability are more common among Black consumers, it should not be surprising to learn that Black households are more than twice as likely as White households to use payday lending. Payday loans are an expensive and usually predatory type of credit, in contrast to traditional sources of credit, such as banks, credit unions, and credit card issuers.

Credit Options Are Limited by Circumstances

In our credit system, there are some people who have the privilege of starting out with good credit and stable finances simply due to the circumstances they were born into, while many others are not so fortunate.

As we talked about in our article about equal credit opportunity, there are five main factors, referred to as the “five C’s,” that influence a borrower’s performance when it comes to paying back debt:

Capacity: the amount of income that is available to pay off debts
Collateral: the value of assets backing a loan, such as your car or your house
Capital: the value of assets that do not explicitly back a loan, but may potentially be used to repay it
Conditions: events that can disrupt a borrower’s income or create unexpected expenses that affect a borrower’s ability to make loan payments, such as a job loss
Character: the financial knowledge, experience, and/or willingness of a borrower that is relevant to their ability to manage financial obligations

As much as some people may like to believe that getting good credit is simply a matter of determination and hard work, in reality, each of the five C’s is subject to external forces and influences that may be beyond the control of the borrower.

When it comes to your capacity to pay off debts, for example, your income may be limited by the availability of jobs where you live and the types of jobs you can qualify for. Hiring discrimination and other challenges prevent many Black individuals from earning to their full potential, which results in a reduced capacity to pay off debt compared to White folks.

In order to have collateral and capital, you need to have valuable assets, which is a privilege that not everyone enjoys.

A borrower’s “character” depends on their upbringing and education, which for many people does not include adequate financial education.

And while anyone could be faced with unexpected conditions that may lead to financial hardship, people who are financially and socially privileged are in a much stronger position to recover, while others who are less fortunate could face financial ruin from even a single emergency.

Lacking Access to Credit Has Consequences

The reality in our country is that centuries of systemic inequality continue to have an impact on all of these five C’s in countless ways, which contribute to higher rates of credit invisibility and poor credit in Black communities.

As the CFPB states, “…the problems that accompany having a limited credit history are disproportionally borne by Blacks, Hispanics, and lower-income consumers.”

For example, data show that 42% of consumers in communities of color have debt in collections, compared to only 26% of consumers in White communities. Delinquency rates or default rates for medical debt, student loan debt, auto loans, and credit card debt are higher for communities of color across the board.

This makes a lot of sense when you think about the fact that Black and Hispanic borrowers have lower incomes and less wealth that they can use to service their debts compared to White borrowers.

The consequences of these disparities are far-reaching. Here are just a few of the repercussions of having no credit or bad credit:

It is more difficult to obtain credit, from credit cards to installment loans.
Credit is more expensive—it comes with higher interest rates and fees and may require a larger down payment or security deposit upfront.
Insurance rates may be more costly for those with bad credit.
It may affect your employment opportunities since surveys have shown that around 20%-25% of employers conduct credit checks as part of the hiring process for some positions.

Who Has the Privilege of Receiving Financial Support From Others?

Perhaps another “C” could be added to the list: community.

Often, the difference between good credit and bad credit or no credit at all often comes down to having a strong financial support network.

If you think about the five C’s of credit performance (capacity, collateral, capital, conditions, and character) we described above, each factor can be influenced or controlled by the financial resources available to you within your social circle.

According to the Urban Institute, “Financial support received can be saved or invested in an education or a home and it can be used to cover unexpected costs, helping families remain stable through financial emergencies.”

Having been deprived of generational wealth for centuries, Black households have fewer financial resources to draw on when a friend or family member is in need, and they receive less financial support from those in their networks compared to the amount of support that White families receive.

The Federal Reserve reports that while 71% of White Americans say they would be able to get $3000 from friends or family if they needed to, only 43% of Black Americans could say they would be able to do the same.

Another example of uneven access to financial support by race has to do with large monetary gifts and inheritances. The same report by the Urban Institute quoted above states that Black and Hispanic families are five times less likely to receive large financial gifts or inheritances than White families. For those who do benefit from large gifts and inheritances, Black families receive an average of $5,013 less than White families. It is estimated that this disparity explains 12% of the racial wealth gap.

From these examples, we see how a person’s family connections can enhance their access to capital and collateral, which can then make it easier to obtain and successfully pay off credit obligations. Conversely, not having access to those resources and possibly even having to support your own friends and family makes it much more difficult to manage debt.

An article in Forbes about the racial wealth gap summed it up well: “Those who have neither emergency savings nor flush friends and family to tap are more likely to take high-rate loans from payday lenders, skip needed medical care, fall behind on rent, mortgage or other bills or even have trouble paying for food.”

Piggybacking for Credit: Only for “Friends and Family”?

Being part of a privileged community does not only make it easier to access capital. It also means that you may be able to acquire a positive credit history before you have even used credit or opened your own primary accounts, thanks to the help of friends or family.

Achieving good credit early on in life is often the result of having friends and family members who also have good credit and who can share their positive credit history with someone who is just starting out. This process is called credit piggybacking because you can “piggyback” on someone else’s good credit in order to build up your own credit profile.

Ways to piggyback for credit include opening an account with a cosigner or guarantor, opening a joint account with someone who has good credit, or becoming an authorized user on someone else’s tradeline. Becoming an AU on a seasoned account is usually the preferred method for building credit fast because you can add years to your credit history simply by being added to the account, whereas the other methods involve opening a new primary account and waiting for it to age.

Unfortunately, when it comes to credit piggybacking, we see the same patterns of inequality along racial lines.

Many Consumers Are Already Benefiting From Credit Piggybacking

A study on AU accounts conducted by the Federal Reserve Board revealed that over a third of scoreable consumers in the United States have at least one AU tradeline in their credit profiles.

However, when the prevalence of AU tradelines is broken down by race, twice as many White consumers have AU accounts as Black consumers: only 20% of Black consumers have AU accounts, compared to 40% of White consumers.

In addition, the statistics showed that Black individuals have fewer AU accounts, on average, than White individuals, and when Black consumers do have AU tradelines in their credit profiles, the tradelines have less age and higher utilization rates of the tradelines held by White consumers.

What About “Equal Credit Opportunity”?

Despite the fact that one in three scorable consumers in our nation are already taking advantage of authorized user tradelines, there are still some who oppose the tradeline industry because they feel that those who purchase tradelines are “cheating the system.”

Yet these same people and institutions usually have no qualms about recommending that parents help their children build credit by allowing their children to be authorized users on their credit cards, or that a spouse who has good credit designates their partner as an authorized user for the purpose of building credit.

Most, if not all, of the big banks promote this strategy, often even explicitly saying that the authorized user does not need to be given the card to use, which makes it clear that it is solely for the purpose of getting that tradeline to appear on the authorized user’s credit profile.

As you can see, just like in many other aspects of our society, there is a double standard when it comes to who is “allowed” to benefit from AU tradelines.

While the banks publicly encourage their customers and their customers’ “friends and family” to use this credit-building tactic, they also claim that this opportunity should not be available to others who turn to the tradeline industry because they simply do not have the option of going to family or friends for credit help.

It does not seem fair or equal to promote a powerful credit-building strategy for those who are already privileged enough to have support from their social network while at the same time saying that it is wrong or should not be allowed for those who have fewer opportunities to get ahead.

How Can We Create Equal Opportunity for All?

Unfortunately, the racial economic divide in this country runs deep, as it has been perpetuated by American systems for generations.

For this reason, Black consumers disproportionally struggle with low incomes, less wealth, poor credit or no credit, and fewer opportunities to get ahead in life financially. This makes it more difficult to simply pay the bills and stay afloat, let alone to save money, invest in assets, and build wealth.

So what can we do to start to bridge the divide?

To address the disparity fully, it’s clear that large-scale economic policy changes on a national level will be needed.

The actions of individual consumers and businesses, while they cannot solve the problem as a whole, can help people take steps to improve their finances and credit.

Education on the Credit System and Personal Finance

Sadly, basic financial education is not something that most people are exposed to, neither in school nor at home.

Research is mixed on the topic of whether enhanced financial education in school would significantly help with the issue of economic inequality in our country. However, it can make a big difference to individuals to educate themselves on money management and the credit system and become empowered with this information to make better financial decisions.

We understand the importance of being educated about credit, knowing what the weaknesses in the credit system are, and understanding the steps you need to take to improve your credit. When you become familiar with how the credit system works, you have more power to make it work for you, instead of the other way around.

To help consumers learn about these topics and take action in their own lives, we have created a comprehensive Knowledge Center that contains information on tradelines, credit repair, credit scores, the legality and ethics of using tradelines, and more.

You can start taking control of your financial future with the knowledge and the power of these resources at your fingertips.

Tradelines and Equal Credit Opportunity

For those who lack a positive credit history, there are not many options to get started on building their credit profile, since most lenders base their decisions on your credit score and your track record of successfully managing credit in the past. Just like trying to get a job with no work experience, It can seem nearly impossible to get credit if you have not already had experience with credit before.

This is why we are so passionate about what we do at Tradeline Supply Company. We fill the void that so many consumers are looking for in their quest to start building or rebuilding their credit.

Our goal is to help create equal opportunity by making tradelines affordable and accessible to all consumers, not just the wealthy and the privileged.


While the wealthy have always had easy access to credit and strategies for building credit, the same cannot be said for the many people in America who are on the other, less fortunate side of the massive wealth gap.

At the same time, income inequality and the racial wealth gap keep growing larger, leaving more and more people behind who are struggling to build credit, manage their finances, and create a strong financial foundation for themselves and their families.

Systematic, government-legitimized discrimination against Black folks deprived Black communities of the opportunity to grow and thrive economically for hundreds of years. To this day, even though we claim to value equality, there are serious financial disparities in our systems that Black families bear the brunt of.

Although we alone cannot repair this injustice, we will continue to do our part in helping to provide equal opportunity to all consumers and create a more level playing field in our economy.


Additional Resources

What Happened to Equal Credit Opportunity for All?

What Does It Mean to Be Credit Invisible?

The Ethics of Tradelines

Vox – America’s wealth gap is split along racial lines — and it’s getting dangerously wider

Center for American Progress – Systematic Inequality: How America’s Structural Racism Helped Create the Black-White Wealth Gap

Joint Economic Committee – The Economic State of Black America in 2020

Vox – Living in a poor neighborhood changes everything about your life

National Consumer Law Center – Past Imperfect: How Credit Scores and Other Analytics “Bake In” and Perpetuate Past Discrimination 

Center for American Progress – The Economic Fallout of the Coronavirus for People of Color

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FICO 10: What You Need to Know About the New Credit Score

FICO, the company behind the creation of the original FICO credit score and its many subsequent iterations, has announced the latest model in their line of credit scoring algorithms: the FICO Score 10 and the FICO Score 10 T. The “T” in the latter scoring model stands for “trended,” which reflects the incorporation of trended data over time into the algorithm.

Thanks to not only the trended data but also a few other major changes, the new scoring models are claimed to be superior to all previous FICO scores.

Although the majority of consumers are not likely to see a dramatic change in their credit scores, some groups of consumers may experience more extreme shifts. Ultimately, the new FICO scores are predicted to widen the gap between consumers with good credit versus those with bad credit.

However, none of that matters until FICO 10 and 10 T actually start being used, which could still be a few years away.

Keep reading to get all the facts on FICO 10, including what makes it different from previous FICO score versions, the impact it will have on credit scores, and when we will start to see lenders adopting it. Most importantly, we’ll tell you how to get a good credit score with FICO 10.

Why Did FICO Come Out With a New Credit Scoring Model?

The whole point of a credit score is to communicate a consumer’s level of credit risk to lenders so that lenders can make less risky decisions when granting credit. Lenders want to avoid extending credit to borrowers who are likely to default on a loan because defaults represent losses for the company.

So, the more accurate a credit scoring model is at predicting consumer credit risk, the more useful it is to lenders. With a predictive credit scoring model, lenders can make more informed lending decisions, which helps their bottom line.

For this reason, the goal of each new credit score is to make it better than the last version at predicting credit risk, and that is exactly what FICO 10 is designed to do.

Consumer Debt Is on the Rise—But So Are Credit Scores

According to The Balance, consumer debt has increased to record levels, and yet the average credit score in the United States has also increased to 706 as of September 2019. This can be attributed partly to economic conditions over time, but there is another major factor that has the banks worried.

The national average FICO score has been on the rise for the past decade and it surpassed the 700 mark in 2018.

The national average FICO score has been on the rise for the past decade and it surpassed the 700 mark in 2018.

It has now been 12 years since the Great Recession of 2008, which means almost all of the delinquencies and derogatory marks on consumers’ credit reports from that period of financial hardship have been removed from their records. Therefore, creditors can no longer see how consumers handled the recession and whether they were able to pay all of their bills when the economy went south.

Couple this with the fear of another possible economic recession on the horizon, and you can understand why lenders have started to feel concerned that delinquencies and defaults may soon begin to rise to a level that is not reflected in consumers’ high credit scores.

Because of these economic factors, the credit scoring system needed an overhaul that would take into account the changing economic climate as well as changing consumer behavior and allow for better predictions of credit risk and default rates.

FICO 10: More Accurate Predictions of Credit Risk
FICO predicts that FICO 10 will lower defaults on auto loans by 9% and defaults on mortgages by 17%.

FICO predicts that FICO 10 will lower defaults on auto loans by 9% and defaults on mortgages by 17%.

Due to the changes made to the scoring model that we discussed above, especially the inclusion of trended data for the FICO score 10 T, FICO claims that the new scores perform better than all previous FICO scores by substantially lowering consumer default rates.

Here’s what else FICO has to say about their new products:

“By adopting the FICO® Score 10 Suite, a lender could reduce the number of defaults in their portfolio by as much as ten percent among newly originated bankcards and nine percent among newly originated auto loans, compared to using FICO® Score 9. The reduction in defaults is even higher for newly originated mortgage loans, at 17 percent compared to the version of the FICO Score used in that industry. These improvements in predictive power can help lenders safely avoid unexpected credit risk and better control default rates, while making more competitive credit offers to more consumers.”

How Is FICO 10 Different Than Previous FICO Scores?

Although FICO routinely updates their credit scoring algorithms every five years or so, this will be the first time that they are releasing two different versions of the same general scoring model: FICO 10 T, which uses trended data; and FICO 10, which does not use trended data.

Both FICO 10 and FICO 10 T will be drastically different than the previous FICO score, FICO 9. FICO 9 was designed to be very forgiving to consumers, which led many to believe that it produced credit scores that were higher than they should have been.

With FICO 9, for example, medical collections were given less weight than other types of collections, which was a benefit to consumers struggling with medical debt.

Furthermore, FICO 9 completely ignored paid collection accounts, meaning that if you had a collection on your credit report but then paid the balance, it would no longer affect your credit score. Many felt that this change contributed to FICO 9 overestimating the creditworthiness of consumers, which in turn led to the scoring model not being accepted by many industries.

In contrast, the FICO 10 scores represent a swing back in the opposite direction. It is designed to be less lenient toward consumers with risky credit behaviors in order to avoid understating consumers’ credit risk. In that sense, it is probably more similar to FICO 8 than to FICO 9. However, FICO 10 also rewards consumers who have successfully managed their credit.

To accomplish this, FICO made some significant changes in creating their latest set of credit scoring algorithms.

Trended Data
The new FICO 10 T score is the first FICO score to look at trended credit data.

The new FICO 10 T score is the first FICO score to look at trended credit data.

The FICO 10 T score will incorporate trended data, which means that it will not just consider your credit profile as a “snapshot” in time, but rather, it will take into account your credit behavior over the previous 24 to 30 months and how your credit profile has changed in that time.

VantageScore 4.0, a competing credit scoring model, has been using trended data since it debuted in 2017. Now, FICO is following suit with their 10 T score.

Because of the more extensive temporal data set FICO 10 T has to draw from, it is even more predictive of a borrower’s credit risk than the basic FICO 10 score, which can only see a “snapshot” of your credit report at a given point in time.

For consumers, the trended data factor is especially significant for the credit utilization portion of your credit score. Of course, credit scores already looked at your payment history from the past seven to 10 years, but until now, they only looked at your credit utilization ratios at a given point in time.

This means that with most credit scoring models, even if you max out your credit cards one month and your credit score suffers as a result, as long as you pay down your cards again by the next month, your score can still bounce right back to where it was before you maxed out the card.

With FICO score 10 T, however, it won’t be so easy to recover from high balances, because a record of being maxed out could stick around for the next 24 to 30 months.

In addition, if your balances have been climbing higher over the last two years or if you have been seeking credit more aggressively, you could be penalized by FICO 10 T, because this kind of behavior indicates a higher risk of you defaulting in the future.

On the other hand, if you have been managing your credit well and your debt levels have been decreasing over the past two years, you will be rewarded for that behavior.

Personal loans from online lenders have exploded in popularity, but it's best to avoid them if you want to get a high FICO 10 credit score.

Personal loans from online lenders have exploded in popularity, but it’s best to avoid them if you want to get a high FICO 10 credit score.

Personal Loans Will Be Penalized

The vice president of scores and analytics at FICO, Joanne Gaskin, has said that the most significant change to the scoring algorithm is the way it treats personal loans.

Personal loans are growing faster than any other type of consumer debt, even credit cards. Consumers are turning to personal loans to consolidate credit card debt more frequently than in the past, and the proliferation of financial technology companies has made personal loans easier to qualify for and more accessible.

With older FICO models, personal loans are treated the same as any other installment loan. Since the balances of installment accounts don’t affect credit scores as much as the utilization ratios of your revolving accounts, with most scoring models, taking out a personal loan to consolidate credit card debt (essentially converting revolving debt into installment debt) would benefit a consumer’s credit score.

However, many consumers who take out personal loans to pay off revolving debt don’t change the spending habits that got them into debt in the first place. Consequently, after getting a personal loan and paying down their credit cards, they may run up their cards again and find themselves even deeper in debt.

According to FICO, the credit risk of such consumers is higher than you would think based on their credit scores using previous FICO models. To account for this, FICO 10 is treating personal loans as their own category of credit accounts and is potentially penalizing consumers for taking out personal loans.

With FICO 10 T, recent missed payments will matter even more than they already do with other FICO score versions.

With FICO 10 T, recent missed payments will matter even more than they already do with other FICO score versions.

Therefore, with FICO 10, the strategy of consolidating credit card debt with a personal loan might not help your credit score as much as you hope and might even hurt it. However, the negative impact of taking out a personal loan can be mitigated by steadily working to reduce your overall debt level.

On the other hand, if your overall debt load stays the same or continues to increase after you take out a personal loan, that could hurt your credit score because it shows lenders that you are getting deeper into debt and not managing your credit well.

Recent Missed Payments Will Be Penalized More Heavily

Payment history has always been the most important part of a FICO credit score, but it is even more important with FICO 10 T, the trended data score.

Using historical data, it can assign late and missed payments even more weight based on your behavior in the past 24 months. For example, if you’ve been getting progressively farther behind on payments over time, the negative impact on your credit score could be even greater than it would with a previous FICO score.

If you have delinquencies that are at least a year old, though, then those older negative marks on your credit report won’t hurt your score as much, according to MSN.

How Will the FICO 10 Scoring Model Affect Credit Scores?

Overall, it is predicted that the new FICO 10 scoring models will have a polarizing effect on consumers’ credit scores, which means that some consumers who have bad credit scores may see them drop even further, while those who have good credit scores because they are on the right track may be rewarded with even higher scores.

40 million consumers are likely to experience a credit score drop of 20 or more points with FICO 10 compared with previous models. This could push some consumers over the edge into a lower credit rating category.

40 million consumers are likely to experience a credit score drop of 20 or more points with FICO 10 compared to previous models. This could push some consumers over the edge into a lower credit rating category.

FICO has estimated that approximately 100 million consumers will probably experience minor changes of less than 20 points to their scores. The company also estimates that about 40 million consumers will see their credit scores drop by 20 or more points, while another 40 million could see their scores increase by the same amount.

You are likely to see a credit score drop if you took out a personal loan to consolidate debt but then kept accruing more debt instead of paying it off, or if you have credit card debt that you are not paying down.

You are most likely to see a credit score increase if you have been penalized for having high balances from time to time, since the temporal data from FICO 10 T will help to average out the peaks in your utilization rate.

While a decrease of 20 points in your credit score isn’t catastrophic, it could be enough to make a difference in your chances of being approved for credit or the interest rates you could qualify for. This is especially true for those whose credit scores sit near the lower border of a credit score category.

For example, if someone with a credit score of 595 with FICO 8 is considered to have fair credit. If FICO 10 gave them a credit score that is 20 points lower, their credit score would be 575, which is considered bad credit. That could very well make or break your chances of getting approved for a loan or a credit card.

On the other hand, the inverse is true for those who stand to gain 20 points. If a 20 point increase pushes a consumer over the edge from fair credit to good credit, for example, this could certainly be beneficial when applying for credit.

It's estimated that 80 million consumers will see a significant change in their credit scores with FICO 10, which may move them into different credit score ranges.

It’s estimated that 80 million consumers will see a significant change in their credit scores with FICO 10, which may move them into different credit score ranges.

Less Severe Score Fluctuations

As you may recall from How to Choose a Tradeline, the more data there is contributing to an average, the more difficult it is to affect that average. 

Since FICO 10 T looks at your credit utilization for an extended period of time instead of just the current month, it is likely that your credit score will not change as drastically from month to month based on your utilization ratios at the time.

In other words, your utilization data from the past 24 to 30 months will have a stabilizing effect on your score that will protect it from being heavily penalized if you occasionally have high balances. For example, if you spend extra on your credit cards in December to prepare for the holidays, your score that month won’t be hurt as much as it would without the trended data (as long as you pay it off quickly).

Greater Emphasis on Trends and Recent Data
FICO 10 T will especially reward consumers who have a trend of improving their credit over time.

FICO 10 T will especially reward consumers who have a trend of improving their credit over time.

The inclusion of trended data with FICO Score 10 T and extra emphasis on recent data means that your credit score is not based solely on what your accounts look like today, but instead, it will give more importance to whether your credit is getting better or getting worse.

Hypothetically, it’s possible that two consumers with the same amount of debt and derogatory items could have different credit scores based on the trend in their debt levels.

If one consumer has $10,000 of credit card debt, but they have been making progress on paying that down from a starting point of $20,000 of debt, then their credit score would be helped by FICO 10 T because their debt level is demonstrating a trend of improvement over time.

If the other consumer also has $10,000 of credit card debt, but they used to only have $1,000 of revolving debt, that trend shows that they are getting deeper into debt, and their FICO 10 score would be hurt by that pattern of increasing debt.

A Polarizing Effect on Credit Scores

One of the major effects of FICO 10 is that it is likely going to polarize the pool of consumers’ credit scores. In other words, those near the top of the credit score range will get even higher, while those with low credit scores will sink even lower along the scale. 

According to CNBC, consumers with scores of lower than 600 will experience the largest reductions in their credit scores with FICO 10. Those with scores of 670 and above could possibly gain up to 20 points.

This creates a distribution of credit scores that is more concentrated at the two extremes, as opposed to most consumers’ credit scores being concentrated around the average.

Unfortunately, that means the negative effects of the new FICO scores will disproportionately impact consumers who are already struggling with debt. This will make it even harder for consumers to get out of debt and may force them to seek out costly, predatory loans, which only accelerates the downward spiral of debt.

This perpetuation of inequality in the credit scoring system is not new, but it seems that FICO 10 will only serve to increase credit inequality rather than improve it.

Ultimately, FICO’s clients are the banks, and their products are designed to give banks the upper hand, not consumers.

When Will the New FICO Score Be Rolled Out?
By widening the divide between consumers with good credit and those with bad credit, it seems that FICO 10 will exacerbate credit inequality.

By widening the divide between consumers with good credit and those with bad credit, it seems that FICO 10 will exacerbate credit inequality.

According to FICO, the FICO Score 10 Suite of products will be available in the summer of 2020. The vice president of scores and predictive analytics at FICO, Dave Shellenberger, told The Balance that Equifax will be adopting the new score shortly thereafter.

As to when lenders will actually start to use the new credit scoring system, that is a different question.

Lenders Are Slow to Adapt to New Credit Scoring Systems

The financial industry adapts very slowly to systemic changes. As we discussed in “Do Tradelines Still Work in 2020?”, there are many, many different versions of FICO, and the majority of lenders are still using versions of the score that are years or even decades old.

Before FICO 10, the latest version had been FICO 9, which has largely gone unused by lenders.

FICO 8 is the credit scoring model that is currently being used by the three major credit bureaus and it is also the most widely used model among lenders today. FICO 8 debuted in 2009, which means it has now been around for over a decade.

There are certain industries that rely heavily on FICO score versions that are even older than FICO 8. In the mortgage industry, the most popular FICO scores are versions 2, 4, and 5, the earliest of which debuted in the early 1990s. Auto lenders may use FICO scores 2, 4, 5, or 8, while credit card issuers use models 2, 3, 4, 5, and 8.

Furthermore, many industries and even some large lenders have their own proprietary FICO scoring models which have been customized for that particular institution and the consumer base they serve.

Lenders have amassed huge troves of data based on a specific credit scoring model. Having reliable data is crucial to minimizing risk during the underwriting process. If lenders were to change to a new scoring model, all of the credit scoring information they have collected so far would no longer be applicable, since it was calculated using a different algorithm.

It is likely that the FICO 10 T score will take longer to implement than the basic FICO 10 score because FICO 10 T will require businesses to train employees to use a new set of reason codes.

It is likely that the FICO 10 T score will take longer to implement than the basic FICO 10 score because FICO 10 T will require businesses to train employees to use a new set of reason codes.

They would essentially be starting from scratch, which would mean taking on more risk until they have tested the new model for long enough to understand how it works for their businesses. Because of this, lenders are often reluctant to upgrade to a newer scoring model and slow to implement it.

Therefore, we can make an educated guess that it will most likely take at least a few years for FICO 10 to gain traction with lenders on a large scale. According to Shellenberger of FICO, it may take “up to two years” before lenders start using the new model, although based on past examples, it seems likely that it could take a lot longer than that.

FICO 10 T Will Be More Challenging for Lenders to Adopt

According to FICO, the standard FICO 10 score uses the same “reason codes” as older FICO scores. Reason codes, also referred to as “adverse action codes,” are the codes that lenders must provide if they have rejected your application for credit based on information from your credit report. These codes usually consist of a number and a brief statement of something that is impacting your score in a negative way, such as revolving account balances that are too high compared to your revolving credit limit.

Because FICO 10 shares the same reason codes with previous versions of FICO scores, this means it will be compatible with lenders’ current systems, at least with regard to reason codes.

In contrast, FICO 10 T comes with a new set of reason codes, which means it will be a more extensive undertaking for banks to implement the new score and train employees on how to use it.

For this reason, it seems likely that the basic version FICO 10 may see widespread use among lenders before FICO 10 T does.

How to Get a Good FICO 10 Credit Score

Although some significant changes have been made to the FICO 10 credit scoring products, the overall principles of managing credit remain the same. Most importantly, make all of your payments on time, every time, and try to keep your credit utilization low.

However, there are a few specific points to keep in mind if you want to get a good credit score with FICO 10.

Think twice about taking out a personal loan

Since personal loans will be more heavily penalized with FICO 10 scores, you’ll want to avoid taking out a personal loan unless it’s absolutely necessary. Instead of relying on personal loans to support your spending, try to save up for large purchases in advance, and start funneling some cash from each paycheck into an emergency fund in case you run into financial hardship.

If you do end up needing to use a personal loan, try to pay it down as quickly as you can. In addition, don’t run up the balances on your revolving accounts again, because the FICO 10 T algorithm does not reward this behavior, and your credit score will reflect that.

Consider setting up automatic payments for all of your accounts so that you never accidentally miss a payment.

Consider setting up automatic payments for all of your accounts so that you never accidentally miss a payment.

Never miss a payment

Avoiding late or missed payments is of the utmost importance with any credit score, but it is even more important with the new FICO scoring system. Late and missed payments may be assigned more weight based on your recent credit history, especially missed payments that occurred within the past two years.

To avoid missing any payments, set up all of your accounts to automatically deduct at least the minimum payment from your bank account before your due date each month. Also, it’s a good idea to get into the habit of checking your accounts regularly to make sure there haven’t been any errors or issues with processing your automatic payments.

If you do accidentally miss a payment, pay the bill as soon as you notice and consider asking your lender to waive the late fee. If you manage to catch up before 30 days have gone by, then you can avoid getting a derogatory item added to your credit report.

In the event that you find yourself with a 30-day late (or worse) on your credit report, then you will need to be extra vigilant about making payments on time for at least the next one to two years if you want your score to recover.

Pay off your credit cards in full every month

Paying off your credit cards in full is always a good idea in general because that way, you can avoid wasting money on interest fees. In addition, paying off your full balance each month prevents your credit utilization from increasing from month to month, as opposed to carrying over a balance and then adding more to it each month.

With trended data playing a large role in your FICO 10 T score, consistency is key, and paying your bills in full every time will help boost your score.

If you want to get a good credit score with FICO 10 and FICO 10 T, try to keep your revolving debt low by paying off your credit cards in full every month.

If you want to get a good credit score with FICO 10 and FICO 10 T, try to keep your revolving debt low by paying off your credit cards in full every month.

Lower your credit utilization ratios

With FICO 10 T, it will be more important than ever to be vigilant about maintaining a low credit utilization ratio. Since the trended scoring model accounts for patterns in your credit utilization over the past 24 months, it won’t be so easy to get away with maxing out your credit cards one month and then quickly paying the balance down to improve your score again the next month.

High credit utilization at any point in the past two years could be factored into your credit score, especially if your utilization has been increasing over time.

For this reason, if your credit is being scored with the FICO 10 T model, you’ll get the best results if your credit utilization has been consistently low or if it has shown a pattern of decreasing over time.

However, just because you pay off your credit card in full every month doesn’t mean it will report a zero balance. The balance that reports to the credit bureaus is the balance that you have at the end of your statement period. If your balance happens to be high on that date, then it could negatively affect your score, even if you pay off the balance soon after.

One way to get around this is to pre-pay your credit card bill before your due date and your statement closing date. That way, the balance will be low when the card reports to the credit bureaus, which is better for your credit score.

Another helpful credit hack is to spread out multiple smaller payments throughout the month so that the balance never climbs too high to begin with.

Read more about how to get the best credit utilization ratio in our article, “What Is the Difference Between Individual and Overall Credit Utilization Ratios?

Requesting a credit line increase can be an easy way to improve your utilization rate, but this method should be used with caution if you think it might encourage you to rack up more debt.

Requesting a credit line increase can be an easy way to improve your utilization rate, but this method should be used with caution if you think it might encourage you to rack up more debt.

Increase your credit limit

One way to easily lower your utilization rate is to increase your credit limit. Spending $1,000 on a card with a credit limit of $5,000 is a lot better than spending the same amount on a card with a credit limit of $2,000.

Increasing your credit limit might be easier than you think. It could be as simple as calling up your card issuer on the phone or applying for a credit line increase online. Most people who ask for a higher credit limit get approved, according to

However, this strategy is not encouraged for consumers who may be tempted by the higher credit limit to spend even more on the card.

For tips on how to get a larger credit limit, as well as some pitfalls to watch out for before requesting an increase, check out “How to Increase Your Credit Limit.

Work to improve your credit health over time

With FICO score 10 T including more information about your credit history over the past 24 months, it will be important to demonstrate an improvement in your credit over time. Consumers who have been working to manage their credit responsibly and who have reduced their amount of revolving debt over time will be rewarded.

On the other hand, those whose credit health has been declining due to increasing debt levels or a series of missed payments will see their credit scores take a dive.

For resources on how to improve your credit, check out the credit articles and infographics in our Knowledge Center, such as “The Fastest Ways to Build Credit,” “Easy Credit Hacks That Will Actually Get You Results,” and “How to Get an 850 Credit Score.”

Will the New FICO 10 Score Affect the Tradeline Industry?

First, remember that it’s likely that it’s going to take at least a few years for FICO 10 to be widely adopted by lenders (if lenders choose to use it in the first place, which they may not), which means that nothing is changing for the tradeline industry in the near future.

Secondly, many lenders may choose to adopt only FICO 10 and not FICO 10 T because it will be technically easier to implement. For lenders using FICO 10 without the trended data, there is no change to how authorized user tradelines work.

However, things get more interesting when considering the impact of FICO 10 T on buyers and sellers of tradelines. Until FICO 10 T is adopted by major lenders, we can only speculate as to the changes that will result, but here is one possibility.

What If FICO 10 T Reveals a Tradeline’s Balance History?

One concern that consumers may have is that FICO 10 T will expose a tradeline’s previous high balance if it had one at any point during the past 24 to 30 months. That may be true, but we also know that FICO 10 T places a lot of importance not just on the numbers themselves, but on how they change over time.

All of the tradelines on our tradeline list are guaranteed to have a utilization ratio of 15% or lower. If a tradeline had a higher balance at some point in the past two years or so, then it would show a trend of the balance decreasing, since the balance would have been brought down to under 15% in order to participate in the tradeline program.

FICO 10 T rewards downward trends in utilization, so it seems that authorized user tradelines would still provide value even if higher balances can be seen in the past.

If a tradeline has not had a high balance in the past two years, then that means it will show a pattern of consistently low utilization, which is also beneficial.

Conclusion: What Does the New FICO 10 Credit Score Mean for Consumers?

A lot of speculation and bold claims have been circulating about the new FICO scores, FICO 10 and FICO 10 T. Naturally, consumers and tradeline sellers alike are concerned with the question of how these new scores might affect authorized user tradelines.

It is true that FICO has made some significant changes to their latest credit scoring model, and it’s also likely that some consumers may experience marked increases or decreases in their credit scores compared to previous FICO scoring models. Fortunately, however, there is no need to panic.

Follow the general guidelines of good credit to get a high score with any credit scoring model.

Follow the general guidelines of good credit to get a high score with any credit scoring model.

First, let’s remember that FICO 10 is not in use yet, and it’s probably going to take a few years or more for the majority of lenders to adopt it. In addition, the scoring model that people are most concerned about, FICO 10 T, will take even longer than FICO 10 to reach mainstream popularity since it requires lenders to learn how to start using a new set of reason codes.

For this reason, consumers do not need to worry about lenders seeing the past two years of their credit histories just yet. However, knowing that widespread use of trended data may be on the horizon, you may want to start preparing your credit now. That way, when trended data credit scores become more popular, your credit will be strong and ready to withstand the changes.

To achieve a high credit score with FICO 10 and FICO 10 T, avoid taking out personal loans if you can, as they will be penalized more heavily than in the past. It’s also important to demonstrate either an improvement in your credit over time or consistently good credit habits, which will be rewarded.

Aside from these special considerations, FICO 10 and FICO 10 T still rely primarily on the same credit score factors you are already familiar with: payment history, credit utilization, length of credit history, credit mix, and new credit. While the peripheral details of different scoring models may vary, the core components always remain the same.

Ultimately, if you work on developing good credit practices in these general areas, your credit will be in great shape no matter which scoring model is used.

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What Does It Mean to Be Credit Invisible?

What Does It Mean to Be Credit Invisible? - PinterestHere’s a number that may shock you: about one in five American adults do not have a credit score.

About 26 million consumers are what the Consumer Financial Protection Bureau calls “credit invisible,” which means they don’t have any credit history. Another 19 million consumers have credit records that cannot be scored by a commonly used credit scoring model.

Added together, that means 45 million consumers in our country⁠—nearly one in five adults—lack a credit score.

Without a credit score or a sufficient credit record, it can be extremely difficult to navigate modern society. Credit scores indicate a consumer’s credit risk and therefore serve as the basis for most lending decisions, along with income. It can be difficult or even impossible to obtain credit without one.

Credit scores may also be used by landlords to evaluate prospective tenants, by insurance providers to determine rates, and by utility companies when assessing deposits. Employers may pull prospective employees’ credit reports in order to make hiring decisions.

Therefore, consumers who are credit invisible or credit unscorable may face serious challenges in obtaining credit, housing, insurance, utilities, and employment.

Unfortunately, but perhaps not surprisingly, the problem of credit invisibility is concentrated among certain demographics of consumers.

In this article, we’ll address who is most impacted by credit invisibility and the consequences of lacking credit history. In addition, we will discuss potential solutions to this issue and explain how tradelines can help consumers become credit visible.

Defining Credit Invisibility and Unscorability

The Consumer Financial Protection Bureau published a report on credit invisibility in 2015 in which the Bureau determined how many Americans are lacking credit histories.

For the report, they analyzed a nationally representative data set containing the anonymized credit reports of nearly 5 million consumers. The CFPB purchased these anonymized credit reports from one of the major credit bureaus.

By subtracting the number of credit records in a census tract from the total number of adults living in the census tract, they were able to estimate the number of credit invisible consumers in each census tract.

Nearly 20% of consumers in the U.S. do not have a credit score due to a lack of credit history.

Nearly 20% of consumers in the U.S. do not have a credit score due to a lack of credit history.

Overall, the CFPB found that more than 80% of the adult population in the United States (188.6 million consumers) have credit records with at least one of the major credit bureaus that contain enough information to be scored by the commercially available credit scoring model used for the CFPB’s research.

In contrast, 8.3% of adults have credit records that cannot generate a credit score using this credit scoring model. This group of 19.4 million consumers is divided about equally between consumers whose credit reports do not contain enough information to be scored (“insufficient unscored”) and consumers whose credit history is not recent enough to be scored (“stale unscored”).

This leaves 11% of the adult population who are completely credit invisible, meaning they do not have a credit record at all with any of the major credit reporting agencies.

What Are the Consequences of Being Credit Invisible or Unscorable?

The credit reporting agencies and credit scoring companies have been extremely successful in marketing their products to other industries. As a result, credit checks are now a standard procedure in many essential aspects of modern life. This means that being credit invisible can have devastating consequences for consumers.

Credit May Be Unattainable or Very Expensive

The “credit catch-22” is that in order to qualify for credit, you must already have a history of using credit. Lenders want to see a pattern of responsible borrowing before they take the risk of extending you credit.

Therefore, the obvious problem with having no credit history or minimal credit history is that it bars access to mainstream credit products such as loans and credit cards.

This lack of access to conventional credit options leads credit-invisible and unscored consumers to turn to “alternative financial service providers” (AFSPs), which include businesses such as payday lenders, pawn shops, and check-cashing stores. Unfortunately, services provided by AFSPs typically come with much higher costs than traditional credit products offered by banks.

Consumers who are credit invisible may turn to high-cost AFSPs such as payday lenders if they cannot access traditional credit products.

Consumers who are credit invisible may turn to high-cost AFSPs such as payday lenders if they cannot access traditional credit products.

As most consumers do, those who are credit invisible or unscorable have legitimate credit needs, but unfortunately, their options are usually limited to high-cost AFSPs. 

Housing May Be Difficult to Find and More Costly

Renting a home almost always involves a credit check for the prospective tenants. Often, landlords will simply reject applicants who do not have a credit record.

Some landlords may accept tenants who don’t have any credit history, but since it’s financially risky for them, they will likely charge more for the deposit or ask the tenant to prepay multiple months of rent.

Utility Providers and Wireless Carriers May Require a Deposit

Providers of utilities such as gas, electricity, water, trash, internet, and phone service also typically conduct credit inquiries on consumers. Knowing your credit score helps these companies judge how likely they think you are to pay your bills on time.

If you don’t have a credit score, they can’t make that judgment with confidence. To hedge their bets, the utility companies may ask you to pay a larger deposit upfront.

Insurance Could Be More Expensive

Credit scores are often considered as a factor when insurance companies decide on your rates for auto insurance as well as homeowner’s insurance, according to If they can’t use a credit score to help determine your rate, they may end up charging you more.

Who Is Most Likely to Be Credit Invisible or Unscorable?

As you may remember if you’ve read our article on the topic of equal credit opportunity, the likelihood of being credit invisible isn’t the same for all consumers. In fact, there are strong correlations between credit invisibility and race, age, geography, and income.

Black and Hispanic Consumers Are More Likely to Lack Credit History
The CFPB discovered that consumers who are Black and Hispanic are more likely to be credit invisible or unscorable.

The CFPB discovered that consumers who are Black and Hispanic are more likely to be credit invisible or unscorable.

Compared to consumers who are White or Asian, Black and Hispanic consumers are more likely to be credit invisible or to have credit records that cannot be scored, according to the CFPB’s report.

Only 9% of White and Asian consumers are credit invisible, compared to about 15% of Black and Hispanic consumers. Similarly, only 7% of White adults have unscorable credit records, in comparison to 13% of Black adults and 12% of Hispanic adults.

The CFPB observed that this pattern was consistent across all age groups, which demonstrates that the differences between racial groups are established early on and never go away.

Credit Invisibility Is Correlated With Age

Younger consumers are far more likely to lack credit history than older adults. The CFPB report states that the vast majority (80%) of 18 to 19-year-olds are either credit invisible or have unscored credit records.

For the 20 to 24-year-olds age group, less than 40% are credit invisible or unscored. After the age of 60, however, this percentage begins to increase with age, although it’s not clear exactly what causes this effect.

Because credit history is gradually established over the course of one’s life, it makes sense that credit invisibility and unscored credit records would be more prevalent among young adults.

Income May Affect the Ability to Acquire Credit History

The CFPB found a strong correlation between income and having a credit record that can be scored. In low-income neighborhoods, nearly 30% of consumers are completely credit invisible, while another 15% are unscorable. In total, nearly half of consumers in low-income areas either have no credit history at all or not enough credit history to generate a credit score.

In contrast, in higher-income neighborhoods, only 4% of consumers are credit invisible and an additional 5% have credit files that cannot be scored.

These results aren’t particularly surprising. Income is often even more important than credit score when it comes to qualifying for credit. Even without having any credit history, a consumer with a high income will likely find it easier to qualify for credit than a low-income consumer and thus is more likely to open credit cards or take out loans than a low-income consumer.

Rates of credit invisibility are especially high in low-income neighborhoods.

Rates of credit invisibility are especially high in low-income neighborhoods.

On the other hand, since low-income consumers may have difficulty accessing traditional sources of credit, they may turn to AFSPs such as payday lenders, which typically do not report to the credit bureaus. This hypothesis may help partly explain why there is such a stark difference in the likelihood of credit invisibility between higher-income and lower-income consumers.

When consumers in low- and moderate-income neighborhoods do become credit visible, according to the CFPB, they tend to make the transition later in life than consumers in middle- and upper-income neighborhoods.

In addition, the CFPB report on “Becoming Credit Visible” concluded that consumers who reside in low-income neighborhoods are three times as likely than consumers in high-income neighborhoods to first acquire credit history from non-loan items such as collection accounts or public records (27% of low-income consumers versus just 8% of high-income consumers).

In contrast, consumers in upper-income neighborhoods are much more likely to start their credit records by opening credit cards.

Since the non-loan credit products are generally derogatory items like collections, this statistic suggests that low-income consumers are far more likely to start off their credit history with bad credit. The negative marks could hinder these consumers from being able to qualify for credit for a long time, which means they would likely have few, if any, opportunities to improve their credit profile with on-time payments toward loans or credit cards.

Geographic Regions of Credit Invisibility

Another CFPB report, this one from 2018, looked at geographic patterns in credit invisibility, such as differences between urban and rural areas as well as the problem of “credit deserts.”

Credit Deserts
Credit invisibility is more common in rural areas.

Credit invisibility tends to be more common in rural areas.

A “credit desert” is generally defined as an area that lacks access to traditional financial service providers. However, they may have access to AFSPs such as payday lenders.

In these areas, rates of credit invisibility may be higher due to a lack of access to traditional sources of credit.

Urban vs. Rural Areas

The highest proportion of credit invisible consumers is found in rural areas, even in upper-income neighborhoods. This may be related to a lack of access to the internet in rural areas.

What Is Being Done to Solve Credit Invisibility?

Credit invisibility in America is a serious problem that is not going to be solved overnight. It’s going to take overarching structural changes to address the root causes of credit invisibility and credit inequality.

Let’s explore the potential solutions currently being researched by the U.S. government and by the credit scoring and reporting companies to address credit invisibility and credit inequality.

Government Programs to Support Credit Access

In the CFPB’s Annual Financial Literacy Report for 2019, the Bureau described their efforts to support inclusion and serve historically underserved communities by assisting local governments that are working to address credit invisibility in their cities.

These municipal programs typically focus on helping consumers build good credit by providing consumers with credit education, credit services, and credit products.

The CFPB worked with four cities in the fiscal year 2019 (Atlanta, Georgia; St. Louis, Missouri; Shawnee, Oklahoma; and Klamath Falls, Oregon), so it appears that government efforts to combat credit invisibility thus far have been localized and small-scale.

Alternative Credit Data
Using alternative data, consumers may be able to get credit for their rent and utility payments.

Using alternative data, consumers may be able to get credit for their rent and utility payments.

Alternative credit data is data derived from sources other than traditional credit reporting information. This may include data from ASFPs, utility payments, rent payments, full-file public records, and financial information that consumers can choose to share, such as bank account information (known as “consumer-permissioned data”).

While alternative data does have the potential to help millions of consumers become credit visible, for a majority of them, that may not be a good thing. FICO’s preliminary research using their alternative data scoring model showed that two-thirds of newly scored consumers ended up with a score that was below 620, which is considered bad credit.

Having bad credit can be even worse than having no credit, so for these consumers, the use of alternative data would hurt more than it helps. 

Furthermore, the National Consumer Law Center has argued that the negative effects of such a credit scoring system would disproportionately impact people of color and low-income consumers.

Alternative data may represent a possible solution to credit invisibility, but it should be implemented in a way that does not simply perpetuate and amplify the credit inequality that consumers already struggle with.

How to Become Credit Visible

It’s clear that credit invisibility, lack of access to credit, and inequality in the credit system are not going away anytime soon.

For now, however, we can at least discuss some strategies that individual consumers can use to start building credit and transition from being credit invisible to credit visible in a way that sets them up for success.

Becoming Credit Visible Through Credit Piggybacking

It’s incredibly difficult to get approved for a primary account when you don’t have any credit history to show lenders that you can be trusted. However, you can start to build credit history even without opening a primary account by piggybacking on someone else’s credit.

Piggybacking credit can help consumers transition out of credit invisibility.

Piggybacking on another person’s credit can help consumers transition out of credit invisibility.

Credit piggybacking is when you become associated with someone else’s credit record for the purpose of building credit. This is actually a fairly common way for consumers to start establishing credit.

In “Becoming Credit Visible,” the CFPB noted that about 15% of consumers opened their first credit account with a co-borrower, while another 10% first created their credit record by becoming an authorized user on someone else’s tradeline. This means that in total, about one in four consumers initially gain credit history with the help of someone else via credit piggybacking.

There are three main ways to credit piggyback.

1. Get a Cosigner or Guarantor

When you can’t get credit on your own, having someone who has good credit who can vouch for you as a cosigner or guarantor can make a huge difference in your chances of being approved for credit.

However, it can be difficult to find someone to take on this role, since it not only requires someone with good credit but someone who would be willing to be on the hook for your debt if you cannot repay it.

2. Open a Joint Account With Someone

A joint account is an account that you share with another person. Both parties have access to the account and both people can be held responsible for the debt.

If you know someone with good credit who is willing to open a joint account with you, their positive credit history can help the two of you get approved, similar to getting a cosigner or guarantor. Since both parties jointly share responsibility for the account, you should only open an account with someone you trust completely.

Joint credit cards are not very common, so your options for opening a joint account may be limited.

3. Become an Authorized User on a Credit Card With Age and Positive Payment History
Credit invisible consumers can add credit history to their credit reports by becoming authorized users on seasoned tradelines.

Credit invisible consumers can add credit history to their credit reports by becoming authorized users on seasoned tradelines.

While the previous two credit establishment strategies involve opening a new primary account, which means you’d be starting out with no credit age, the authorized user method provides a shortcut to gaining years of credit history.

When you become an authorized user on a seasoned tradeline (an account with at least two years of age), often the full history of that account is reflected in your credit report as soon as the next reporting date for that account. In other words, you can add years of credit age and positive payment history to your credit file in just a few weeks and sometimes even faster.

The CFPB’s research showed that 19% of consumers (about one in five) had at least one authorized user account on their credit record, and over half of these consumers had transitioned out of credit invisibility as a result of one of their authorized user accounts. On average, consumers gained at least two years of credit history from authorized user accounts.

Not all banks report authorized user data, but when you buy tradelines from Tradeline Supply Company, LLC, you can be confident that we only work with banks that have been proven to reliably report authorized user information.

In addition, authorized user tradelines can increase the total credit limit of your profile.

For these reasons, the authorized user strategy is the fastest and easiest way for those who lack credit history to start building credit.

We cover each of these credit-building strategies in greater detail in our article on the fastest ways to build credit.

Building Credit Through Primary Accounts

Once you’ve established some credit history through credit piggybacking, you can look into opening your own primary accounts.

Credit-Builder Loans
A credit-builder loan is a good option for those without credit history since they are easier to get approved for than traditional loans.

A credit-builder loan is a good option for those without credit history since they are easier to get approved for than traditional loans.

A credit-builder loan is a type of installment loan designed for those who are just starting out on the path to building credit. Lenders are able to offer these loans to consumers with thin credit files or no credit history because they are set up so that the borrower makes all the payments toward the loan before receiving the funds.

See our article on credit-builder loans for more information on how they work and whether a credit-builder loan could help you.

Secured Credit Cards

Those with limited credit history may also benefit from opening a secured credit card. Secured credit cards require you to make a security deposit, the amount of which then becomes your credit limit. Secured cards typically have low credit limits, but they can help you build credit by reporting your payment history to the credit bureaus.

Retail Store Credit Cards

A retail store credit card may also be a good option for those who do not have a credit history, as they tend to be easier to get approved for than bank credit cards. Just be careful not to carry a balance from month to month since retail cards also tend to have higher interest rates.

Creating Equal Credit Opportunity With Tradelines

Unfortunately, inequality has been baked into the credit system from the start, and this fact prevents low-income and minority consumers from getting ahead financially.

For example, the CFPB’s report on becoming credit visible found that low-income consumers were significantly less likely than higher-income consumers to use credit piggybacking methods to establish credit.

Consumers in low- and moderate-income neighborhoods were found to be 48% and 25% less likely, respectively, than consumers in middle-income neighborhoods to become credit visible through a joint account.

Similarly, consumers in lower-income neighborhoods who had recently transitioned out of credit invisibility were less likely to have authorized user accounts on their credit files compared to those in higher-income areas.

In addition, lower-income consumers were less likely to become credit visible via an authorized user tradeline. Lower-income consumers who did have their credit records created as a result of an authorized user tradeline gained less credit history than higher-income consumers.

Since credit piggybacking requires you to partner with someone who has decent credit and/or income, it would seem that perhaps low-income consumers simply do not have access to these resources and partnerships within their social networks.

In the words of the CFPB, “…a lack of co-borrowers may be an important contributor to credit invisibility in low- and moderate-income neighborhoods.”

Today, authorized user tradelines are affordable and accessible to more consumers than ever before.

Today, authorized user tradelines are affordable and accessible to more consumers than ever before.

As we learned earlier, credit invisibility is significantly more prevalent among Black and Hispanic consumers. Altogether, the data suggest that consumers who are Black, Hispanic, or low-income are at a severe disadvantage when it comes to establishing credit and building a credit history.

These are just a few of the many ways in which inequality is manifested throughout the credit system. Simply put, privileged consumers have the opportunity to build credit through credit piggybacking while many others are denied this opportunity.

Historically, the strategy of building credit by becoming an authorized user was primarily limited to the wealthy. Today, however, a marketplace exists where consumers of all backgrounds can take advantage of the benefits of authorized user tradelines.

In addition, there is a wealth of information online that consumers can use to educate themselves on the credit system and start off on the right foot when it comes to building credit.

As a leader in the tradeline industry, Tradeline Supply Company, LLC has opened the door to equal credit opportunity for thousands of consumers. By offering some of the lowest tradeline prices in the industry, we have made tradelines more affordable and accessible to the consumers who need them most.

Related Reading

What Happened to Equal Credit Opportunity for All?

The Surprising History of the Credit Bureaus

Tradelines: What You Should Know About Building Credit

The Fastest Ways to Build Credit [Infographic]

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