We all know that our credit score is important and if you were not aware, there are other interested parties that check your credit score such as prospective employers and even insurance companies. That being said, there are certain things we should NEVER do to improve our credit score. Our credit scores are determined by 5 key factors: Repayment history makes up 35% of the credit score, Credit utilization makes up 30% of your credit score, Age of Credit makes up 15% of your credit score, The mix of your credit profile makes up 10% and new accounts make up 10% of your credit score.
When you open a new credit account, how you manage that credit account is monitored by the creditor and consistently reported to the credit reporting agencies. They track your payment history, how much of your credit limit is used and any issues. If you add an authorized user to your credit account, they then adopt your credit profile for that specific account and it is added to their credit report. Any issues or excellent credit history for that account either hurts or benefits them.
You may have seen videos on Youtube from channels like Brandon Weaver or Wholesale Tradelines about a credit repair secret to vastly improve your credit score quickly. They talk about something called purchasing authorized user tradelines
What some people are doing is finding people with excellent credit profiles and having them be added as an authorized user which instantaneously increases their credit score. Even further, some companies are acting as a broker to find these specific accounts and then sell them to people who are wanting to improve their credit scores. To be very clear: Selling/Purchasing Authorized User Credit Tradelines is the WRONG WAY to improve your credit score. It is wrong because it completely misrepresents your credit profile. While it is technically not illegal to do at this time, it is frowned upon by the credit reporting agencies and the Consumer Financial Protection Bureau (CFPB) and may become explicitly against the law in the near future. Let me explain.
Let's say you have a credit score of 600. You have a few reported late payments on your credit accounts. Let's say you have 3 different credit accounts with a total limit of $3,000 and outstanding balance of $1,500 on those credit accounts. Based on this information, you have a 50% credit utilization which is NOT GOOD. However, if you were to adopt an excellent credit tradeline on your credit report through an authorized user account with a credit limit of $20,000 and a balance of $1,500 and a 100% on time payment history of 10 years, that would greatly improve your credit score and your credit profile. Your credit utilization rate would decrease from 50% to 11% which is calculated by taking the updated total balance of $2,500 and dividing it by the updated credit limit total of $23,000. As you can see, this is a complete misrepresentation of your credit profile to potential lenders. YES, it benefits you but it also does not tell the complete story of what kind of risk you represent to a lender.
Based on this activity, your credit score might increase from 600 to 720 over a month or two. This credit score change may cause a lender to lend money when they normally would not or give you a better interest rate than they would give a 600 credit score borrower. The risk that a lender perceives is higher than they think it is. They think they are lending to a 720 risk profile but they are actually lending to a 600 credit profile.
Given this information, what CAN YOU DO to improve your credit score? There are absolutely some strategies to take to start improving your credit score TODAY.
1. Make a commitment to pay all account ON TIME, EVERY TIME.
2. Work consistently and diligently to lower your credit utilization on your existing credit accounts.
3. Over time you can add additional accounts to increase the amount of credit you have available to you which increases your credit utilization rate.
My name is JOE and I am just your AVERAGE JOE ON MONEY. This channel talks about ALL THINGS personal finance that help people like YOU and I, the Average Joe, learn the fundamental principles of money and win with our finances. Whether it is learning how to budget, saving money for retirement, investing, paying off debt, and all things in between, I have you covered here on the Average Joe on Money YouTube channel.
An excellent credit score via an authorized user credit score increase or by purchasing authorized user tradelines for sale is the WRONG way to improve your credit score. Authorized User credit cards can occur organically with a husband or spouse, but if you buy tradelines to boost your credit score, it misrepresents your credit score to lenders.
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