Ethical and Legal Concerns About Tradelines
It is common for people’s initial reaction to the business of selling tradelines to be: “Is that even legal?” Many instinctively feel that something about it seems off—a sense that it is “gaming the system.”
Yet, on the other hand, almost everyone—including banks, credit bureaus, and regulators—unanimously agrees that the authorized user (AU) strategy for building credit is completely acceptable for friends, family, roommates, and practically any other acquaintances. This means that the identical strategy, with the same intent, is seen as beneficial for some and questionable for others. Society has grown to accept and justify this double standard, wherein the AU strategy is perfectly acceptable for certain groups while the tradeline industry is labeled as “shady” or even allegedly illegal, despite no legal basis for such claims.
This may be one of the greatest double standards within the entire American credit system.
A large-scale, federally funded study of a nationally representative sample of credit reports revealed that over 30% of Americans had one or more AU accounts potentially enhancing their credit scores. To put this in perspective, as of 2020, the U.S. Census Bureau estimated there were approximately 258 million adults in the United States. This means that around 77 million people have credit scores benefiting from AU accounts. Considering that this AU strategy has been used for nearly 50 years, it is safe to say that hundreds of millions of Americans have benefited from it over time. In fact, this credit card feature has existed for almost as long as credit scores themselves. Historically, it was a widely accepted and promoted credit-building strategy—until now.
The Emergence of the Tradeline Industry
The business of selling tradelines became visible on the internet around 2007, though the model likely existed for years before that. The industry originally received bad press following the mortgage meltdown that began around 2006–2007. As short sales and foreclosures mounted, property values plummeted, and fingers were pointed in all directions. Poor underwriting and lending practices were at the heart of this historic event, leading to significant changes in government oversight and regulation across financially related industries.
Consumer credit was not exempt from this scrutiny, and the tradeline business came under fire. When FICO brought this issue before Congress, seeking to disallow AU accounts from being factored into credit scores, the effort ultimately failed due to inconsistencies with the Equal Credit Opportunity Act (ECOA) and Regulation B. These regulations require lenders to consider spousal information in lending decisions. Interestingly, the tradeline industry was not included in any of the sweeping regulatory changes, and non-spousal AUs became further legitimized.
A federally funded study titled Credit Where None Is Due? Authorized User Account Status and ‘Piggybacking Credit’ (with versions from 2010 and 2013) specifically examined the business of selling tradelines. The study highlighted the prevalence of AU accounts among Americans and the racial disparities in who benefited most from AU access.
One conclusion from the 2013 version states:
“A third potential response is to outlaw the practice of piggybacking itself. This may be the least effective solution. Even if federal laws were enacted to shut down the intermediaries that facilitate this practice, the underlying problem would remain. Many credit counselors routinely recommend that people looking to repair their credit or build a credit history piggyback on the accounts of friends or relatives. Fundamentally, this is exactly the same conduct in that it allows people to acquire the credit history of others but without the need for a middleman. While getting rid of the intermediaries could restrict the number of credit lines available for piggybacking to those possessed by willing relatives and friends, piggybacking would remain an option for many.”
This conclusion acknowledges that the credit piggybacking industry is not illegal (otherwise, there would be no need to outlaw the practice) and emphasizes that the tradeline industry is minuscule compared to the broader AU practice. With approximately 77 million participants, the industry of selling tradelines is not the root of the issue—if there is a problem, it lies within the credit scoring system itself.
The Double Standard in Credit Access
Those who defend the credit system often claim that the tradeline industry is bad, illegal, or fraudulent while allowing certain non-spousal AUs and rejecting others. This double standard may stem from a defensive reaction, as the tradeline industry exposes weaknesses in the existing system. Rather than addressing these systemic issues, it is easier to blame an external entity.
This double standard also highlights a larger issue: inequalities within the credit system. Consider this common scenario: If Aunt Susie adds her nephew Timmy as an AU to her credit card solely for credit-building purposes, it is deemed perfectly acceptable. But does that make Timmy inherently more creditworthy than his childhood friend Tyrone, who lacks such familial support? If Tyrone finds a tradeline company and saves his hard-earned money to buy access to the same quality AU account, is that unfair? In fact, could Tyrone’s financial investment in this opportunity indicate a more credit-conscious and responsible borrower than Timmy, who received the benefit for free due to family connections?
Racial and Economic Disparities in Credit Access
Statistics indicate significant racial disparities in credit access:
- White consumers have over 200% more AU accounts in their credit profiles compared to Black consumers, correlating with higher average credit scores (Credit Where None Is Due?).
- Black consumers have the lowest presence of AU accounts and the lowest average credit scores (Credit Where None Is Due?).
- The Consumer Financial Protection Bureau (CFPB) found that lower-income consumers are 240% more likely than higher-income consumers to become credit visible due to negative records like debt in collections.
- Consumers in higher-income areas are 100% more likely than those in lower-income areas to establish credit history by relying on someone else, such as becoming an AU.
Without a sufficient credit history, consumers face barriers to accessing credit or face higher costs. This issue disproportionately affects African Americans, Hispanics, low-income individuals, recent immigrants, young adults, and those who are recently widowed or divorced.
The Role of the Tradeline Industry in Credit Equality
The Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA) were designed to ensure fairness, equity, and non-discriminatory access to credit. However, the AU strategy’s double standard contradicts these principles.
There are various ways the credit system could fairly regulate AU accounts:
- Credit scoring models could adjust how much weight they give AU accounts.
- Banks could voluntarily change their reporting practices regarding AU accounts.
- Regulatory changes could better define distinctions between spousal and non-spousal AUs.
- Banks could limit the number of AUs allowed per credit card.
Despite these possibilities, banks, credit bureaus, and regulators have largely chosen not to change AU practices, likely because they profit from this feature. Many banks charge fees for AU additions, meaning they themselves are financially benefiting from this system.
Conclusion
With one-third of the population already benefiting from AU accounts, restricting access would negatively impact many Americans’ credit scores, potentially harming the economy. Rather than eliminating the tradeline industry, it may be beneficial to recognize its role in promoting credit access and financial inclusion.
The tradeline industry offers several societal benefits:
- Reducing credit invisibility
- Helping immigrants and young adults establish credit
- Assisting minorities and lower-income families
- Increasing financial literacy
- Providing second chances to borrowers
- Decreasing systemic racial and financial inequality
Ultimately, the problem does not lie with the tradeline industry but with inherent flaws in the credit system. Applying restrictions selectively is neither fair nor equitable. If the goal is to ensure fairness, we must reconsider the broader credit framework and address the real issues at hand.
Ethical and Legal Concerns About Tradelines
It is common for people’s initial reaction to the business of selling tradelines to be: “Is that even legal?” Many instinctively feel that something about it seems off—a sense that it is “gaming the system.”
Yet, on the other hand, almost everyone—including banks, credit bureaus, and regulators—unanimously agrees that the authorized user (AU) strategy for building credit is completely acceptable for friends, family, roommates, and practically any other acquaintances. This means that the identical strategy, with the same intent, is seen as beneficial for some and questionable for others. Society has grown to accept and justify this double standard, wherein the AU strategy is perfectly acceptable for certain groups while the tradeline industry is labeled as “shady” or even allegedly illegal, despite no legal basis for such claims.
This may be one of the greatest double standards within the entire American credit system.
A large-scale, federally funded study of a nationally representative sample of credit reports revealed that over 30% of Americans had one or more AU accounts potentially enhancing their credit scores. To put this in perspective, as of 2020, the U.S. Census Bureau estimated there were approximately 258 million adults in the United States. This means that around 77 million people have credit scores benefiting from AU accounts. Considering that this AU strategy has been used for nearly 50 years, it is safe to say that hundreds of millions of Americans have benefited from it over time. In fact, this credit card feature has existed for almost as long as credit scores themselves. Historically, it was a widely accepted and promoted credit-building strategy—until now.
The Emergence of the Tradeline Industry
The business of selling tradelines became visible on the internet around 2007, though the model likely existed for years before that. The industry originally received bad press following the mortgage meltdown that began around 2006–2007. As short sales and foreclosures mounted, property values plummeted, and fingers were pointed in all directions. Poor underwriting and lending practices were at the heart of this historic event, leading to significant changes in government oversight and regulation across financially related industries.
Consumer credit was not exempt from this scrutiny, and the tradeline business came under fire. When FICO brought this issue before Congress, seeking to disallow AU accounts from being factored into credit scores, the effort ultimately failed due to inconsistencies with the Equal Credit Opportunity Act (ECOA) and Regulation B. These regulations require lenders to consider spousal information in lending decisions. Interestingly, the tradeline industry was not included in any of the sweeping regulatory changes, and non-spousal AUs became further legitimized.
A federally funded study titled Credit Where None Is Due? Authorized User Account Status and ‘Piggybacking Credit’ (with versions from 2010 and 2013) specifically examined the business of selling tradelines. The study highlighted the prevalence of AU accounts among Americans and the racial disparities in who benefited most from AU access.
One conclusion from the 2013 version states:
“A third potential response is to outlaw the practice of piggybacking itself. This may be the least effective solution. Even if federal laws were enacted to shut down the intermediaries that facilitate this practice, the underlying problem would remain. Many credit counselors routinely recommend that people looking to repair their credit or build a credit history piggyback on the accounts of friends or relatives. Fundamentally, this is exactly the same conduct in that it allows people to acquire the credit history of others but without the need for a middleman. While getting rid of the intermediaries could restrict the number of credit lines available for piggybacking to those possessed by willing relatives and friends, piggybacking would remain an option for many.”
This conclusion acknowledges that the credit piggybacking industry is not illegal (otherwise, there would be no need to outlaw the practice) and emphasizes that the tradeline industry is minuscule compared to the broader AU practice. With approximately 77 million participants, the industry of selling tradelines is not the root of the issue—if there is a problem, it lies within the credit scoring system itself.
The Double Standard in Credit Access
Those who defend the credit system often claim that the tradeline industry is bad, illegal, or fraudulent while allowing certain non-spousal AUs and rejecting others. This double standard may stem from a defensive reaction, as the tradeline industry exposes weaknesses in the existing system. Rather than addressing these systemic issues, it is easier to blame an external entity.
This double standard also highlights a larger issue: inequalities within the credit system. Consider this common scenario: If Aunt Susie adds her nephew Timmy as an AU to her credit card solely for credit-building purposes, it is deemed perfectly acceptable. But does that make Timmy inherently more creditworthy than his childhood friend Tyrone, who lacks such familial support? If Tyrone finds a tradeline company and saves his hard-earned money to buy access to the same quality AU account, is that unfair? In fact, could Tyrone’s financial investment in this opportunity indicate a more credit-conscious and responsible borrower than Timmy, who received the benefit for free due to family connections?
Racial and Economic Disparities in Credit Access
Statistics indicate significant racial disparities in credit access:
- White consumers have over 200% more AU accounts in their credit profiles compared to Black consumers, correlating with higher average credit scores (Credit Where None Is Due?).
- Black consumers have the lowest presence of AU accounts and the lowest average credit scores (Credit Where None Is Due?).
- The Consumer Financial Protection Bureau (CFPB) found that lower-income consumers are 240% more likely than higher-income consumers to become credit visible due to negative records like debt in collections.
- Consumers in higher-income areas are 100% more likely than those in lower-income areas to establish credit history by relying on someone else, such as becoming an AU.
Without a sufficient credit history, consumers face barriers to accessing credit or face higher costs. This issue disproportionately affects African Americans, Hispanics, low-income individuals, recent immigrants, young adults, and those who are recently widowed or divorced.
The Role of the Tradeline Industry in Credit Equality
The Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA) were designed to ensure fairness, equity, and non-discriminatory access to credit. However, the AU strategy’s double standard contradicts these principles.
There are various ways the credit system could fairly regulate AU accounts:
- Credit scoring models could adjust how much weight they give AU accounts.
- Banks could voluntarily change their reporting practices regarding AU accounts.
- Regulatory changes could better define distinctions between spousal and non-spousal AUs.
- Banks could limit the number of AUs allowed per credit card.
Despite these possibilities, banks, credit bureaus, and regulators have largely chosen not to change AU practices, likely because they profit from this feature. Many banks charge fees for AU additions, meaning they themselves are financially benefiting from this system.
Conclusion
With one-third of the population already benefiting from AU accounts, restricting access would negatively impact many Americans’ credit scores, potentially harming the economy. Rather than eliminating the tradeline industry, it may be beneficial to recognize its role in promoting credit access and financial inclusion.
The tradeline industry offers several societal benefits:
- Reducing credit invisibility
- Helping immigrants and young adults establish credit
- Assisting minorities and lower-income families
- Increasing financial literacy
- Providing second chances to borrowers
- Decreasing systemic racial and financial inequality
Ultimately, the problem does not lie with the tradeline industry but with inherent flaws in the credit system. Applying restrictions selectively is neither fair nor equitable. If the goal is to ensure fairness, we must reconsider the broader credit framework and address the real issues at hand.
