Although I've written about this in a previous post where I discussed the topic in some detail, it's one of those things that really requires its own dedicated post. Something jam-packed full of honest information and facts, direct from their sources. There's an abysmal amount of misinformation (and disinformation) regarding the legality of buying and selling tradelines which deserves to be straightened out.

There are authors, bloggers, vloggers, and generally random people who talk about and publish ridiculous things about the topic that they simply cannot back up. It's not only frustrating, but it's almost sickening. For the record, I'm here to give you the genuine and real answer to the question "is selling tradelines legal?"

(NOTE: For clarification purposes and to identify the use of the word "tradelines", a tradeline is what the financial industry uses as a broad term to describe any type/line of credit. Tradelines come in two major forms - installment loans or revolving lines of credit. The type of tradeline I'm referring to in this article (which is also the tradeline that 99.9% of people are really talking about when they ask if selling tradelines is legal) is an authorized user tradeline.

Yes, selling tradelines is legal. Again, yes, it is legal to sell tradelines. You are not breaking any law, committing a felony, committing a federal crime, or committing bank fraud. Assuming that you are using a reputable and safe tradeline company, and assuming the authorized user tradelines you're selling and being paid for are from your own cards where you are the primary cardholder, there is absolutely nothing illegal about it.

The only situation where selling tradelines (adding authorized users to your credit card in exchange for a payment) would be illegal is if you are willingly or knowingly aiding, assisting, conspiring, helping, planning, or participating in fraudulent credit/financial/identity activity.

Yes, It Is Legal To Sell Tradelines. Let's Discuss The Details.

Many people assume that selling tradelines to someone who will then benefit from an increased credit score which they'll then utilize to finance something or apply for a loan is aiding in criminal activity. This is absolutely incorrect. The arguments these people provide are nothing more than emotional responses or a false perception based on their moral or ethical standards. The moral or ethical aspects of selling authorized user tradelines does not equate to the laws or facts surrounding the selling of authorized user tradelines in any way, shape, or form.

Credit card issuers, credit bureaus, and lending institutions are all very aware of how and why authorized user tradelines work. It wasn't a secret to them in the past, and it's not a secret now. In fact, they all willingly play their own specific roles which allow this "loophole" or "gray area" - as some may call it - to continue thriving. They do so partly by choice, and partly due to their inability to legally discriminate against it. They know and understand how individuals utilize these powerful tools for helping to build their credit.

• The credit card issuing banks know when you add an authorized user to your account. They then notify the credit bureaus of individuals who hold an authorized user status on a card by willfully submitting that information to credit bureaus (something they are NOT required to do by law).

• The credit bureaus, each using their proprietary credit scoring algorithms then incorporate the authorized user accounts into the credit report/score of the individual(s) who have been added as authorized users. This is something they are NOT allowed to dismiss, as failing to report what is passed on to them concerning an individual's credit report is deemed discriminatory, illegal, and is prohibited by the Equal Credit Opportunity Act.

• Finally, lenders, who request credit reports from the bureaus when making decisions based on their own lending and/or financing criteria, see very clearly which accounts are primary credit card accounts and which accounts are authorized user accounts.

At the end of the day, nobody is being fooled or scammed into believing that the credit report of the authorized user is anything other than what the report itself says.

What Do The Banks Think About This?

As we've already discussed, the card-issuing banks know very well that people add authorized users onto their accounts. They know than in many instances the sole purpose is nothing more the primary cardholder's desire to help someone raise their credit score.

Banks also understand that people are known to offer authorized user status to strangers in exchange for payment. While they surely don't like the latter situation since it puts them into a position of a cardholder utilizing company resources to generate income while the bank themselves see no direct or immediate financial gains, there isn't much more they can do aside from closing the cardholder's account if they feel the behavior is abusive.

While banks have the right to deny permission for authorized users to be added to a card for a fee, I've yet to see such fine print on any credit card's terms of use.

It is of my own opinion that when everything is said and done, there are many cases where a bank who issues credit cards also approves financing or a home mortgage based on a credit report containing an authorized user account(s), and that without that authorized user account, the borrower would not otherwise qualify for financing. What does this mean? If my opinion has any teeth, it could mean that in the long-run, banks actually win more than they loose by allowing, accepting, and reporting authorized users from their cardholder's accounts directly to the major credit bureaus.

What Do The Credit Bureaus Think About This?

There are 3 major credit bureaus - Equifax, Transunion, and Experian. Each of them have their own products, their own scoring models, and their own algorithms. These credit bureaus do not form a team. While there may be instances when they are required to discuss financial matters together with congress or lawmakers, they are all individual entities. They are competitors, and as competitors, they each have their own strategies.

In one way, it's possible that the credit bureaus would prefer for an authorized user's status to not be included in an individual's credit report. For the same reasoning, it's possible that they may benefit or prefer for authorized users to be included in an individual's credit report. Regardless of what they prefer, the standard has already been set and law requires them to include and consider the authorized user account in the credit profile.

In fact, the Fair Isaac Corporation (who is the originator and developer of the FICO score) promised in 2007 that their new FICO-8 scoring model was ready for release and would eliminate the incorporation of authorized users into the scoring model, and that credit bureaus - along with lending underwriters - would need to implement the new tool to help fight the benefits that authorized users gain by "paying-to-rent" tradelines as a means to enhance their credit. The outcome? None of the 3 major credit bureaus incorporated the tool (at least not in the manner planned).

Meanwhile, other solutions had came to light, complicating the situation, as well as FICOs position within it all.

These included the idea to incorporate filters which allowed lenders to see what a credit score may look like before/without factoring in any benefit gained by having an authorized user account, and even the creation of the Vantage model which the credit bureaus developed themselves (and which also was supposedly designed to minimize the utility of authorized user accounts on an individual credit score).

On top of it all, there was a little-known meeting that occurred shortly thereafter. During this meeting, some very important decisions were made. I will begin to discuss this below, in detail.

What Does The Law Think About This?

On July 29th of 2008, FICO dragged their plans and concerns before the house committee (and many others who were present at the 110 congress) for a hearing. To keep things short, FICO fought for their position by arguing that the buying and selling of tradelines immoral, unfair, and abusive to the authorized user system that banks allow for. They also sought for a resolution and/or termination to the practiced through the idea that buying and selling tradelines needed to be mitigated, prevented, or banned altogether.

However, The Federal Reserve Board, The Federal Trade Commission, and Congress were not in agreement with this. By citing how and why the Equal Credit Opportunity Act is a safeguard for consumers and prohibits FICO from following through with their desires, they simultaneously ensured that buyers and sellers of tradelines were protected. This means they could not be penalized nor persecuted by credit scoring systems or agencies - regardless of whom they obtained their tradelines from.

During the same hearing, the president of FICO himself openly admitted how legally, FICO is prohibited from distinguishing between the authorized user accounts of spouses and "others", and that doing so would unlawfully violate ECOA (Equal Credit Opportunity Act) terms. This was quite the contradiction to their initial intent, claims, promises, and plans. Especially for anyone who was paying attention.

In fact, not only were FICOs dreams of eradicating the leverage of the authorized user shot down, but FICO had to eventually face reality. Thomas J. Quinn, the Vice President of the Fair Isaac Corporation stated the following:

"Last year, Fair Isaac announced that with our new model update, which is referenced as FICO '08, authorized user accounts would no longer be included in the calculation of the scores.After consulting with the Federal Reserve Board and the Federal Trade Commission earlier this year, we have now decided to continue considering authorized user account tradeline information in the FICO '08 models."

It seems that the law, the banks, and even the FTC were not on board with FICOs plans.

Today, in 2024, authorized user tradelines are still working, thriving, and helping responsible individuals utilize the leverage provided to improve their financial opportunities.

Nothing Changed, Despite The Previous Claims

As plain as day, I can see and comprehend why certain lenders and the owners of the FICO credit scoring system were against the idea tradelines being used to help people gain a foothold on their finances. But the law and those who regulate it had the final say, and they were in favor of leaving things as they are. You can read the complete text of the hearing here. (It's long, but it's interesting as has some great additional information regarding the positions and perspective of high-ranking officials in regard to the overall matter. I'd recommend that you read it, or at least bookmark it for later).

As an additional note - and knowing the influence they have upon pertinent financial matters - the following introductory quote (the "abstract" as it's called in the document) from the Federal Reserve Board may be interesting for some of you.

The document was prepared by the Divisions of Research & Statistics and Monetary Affairs for their Finance and Economics Discussion Series. It was released on March 5, 2010. The 32 page document which is titled 'Credit Where None is Due' can be read in it's entirety here and begins as follows:

"An “authorized user” is a person who is permitted by a revolving account holder to use an account without being legally liable for any charges incurred. The Federal Reserve’s Regulation B, which implements the 1974 Equal Credit Opportunity Act, requires that information on spousal authorized user accounts be reported to the credit bureaus and considered when lenders evaluate credit history. Since creditors generally furnish to the credit bureaus information on all authorized user accounts, without indicating which are spouses and which are not, credit scoring modelers cannot distinguish spousal from non‐spousal authorized user accounts. This effectively requires that all authorized user accounts receive similar treatment. Consequently, becoming an authorized user on an old account with a good payment history, may improve an individual’s credit score, potentially increasing access to credit or reducing borrowing costs. As a result, the practice of “piggybacking credit” has developed. In a piggybacking arrangement, an individual pays a fee to be added as an authorized user on an account to “rent” the account’s credit history. This paper provides the first comprehensive look at authorized user accounts in individual credit records and how their importance differs across demographic groups. Our analysis suggests that piggybacking credit can materially improve credit scores, particularly for individuals with thin or short credit histories. We also evaluate the effect that eliminating authorized user accounts from credit scoring models would have on individual credit scores. Our results suggest that removing this information has relatively little effect on credit scores, but may reduce model predictiveness."

If you ask me, I think it's safe to say that the intro could serve just as well as a closing statement. The way I interpret this is they clearly prefer their predictiveness. I don't imagine that changing any time soon.

What Do Lenders Think About This?

I'm not a lender. I've heard and seen supposed mortgage underwriters claim that authorized user accounts are not considered for mortgage loans, and that they no longer work. Any of the more experienced sellers know this to be false based on simple research, logic, and experience.

I also see supporting information showing the idea that authorized user tradelines are a welcome part of a mortgage application in most circumstances. It seems they would only be heavily criticized should someone have, for example, an extensive number of them, or, more authorized user accounts than their own primary credit accounts. This position is seen by Fannie Mae's own guidelines, as you can read here.

It's interesting to see how loose the rules seem. It's almost like "If it looks extremely suspect, we check it out. If not, it's good to go." At least that's how I interpret it.

What Do You Think About This?

What you think about selling tradelines is an important factor when you're deciding whether or not to sell them. Apart from that, it doesn't change the facts about whether they are legal or not.

For anyone who wasn't previously informed of the major reasons why tradelines are in fact legal, this article should leave you educated enough to understand that there is no real question to be had regarding the legality concerning responsible and proper sales of your tradelines.

If there's more information to be had regarding the subject and if I happen to come across it, I'll be glad to make edits to this article to add it in the future. If you have any additional info or suggestions, feel free to drop it below in a comment.

Facts Are Facts, They Are Not Opinions Or Beliefs

My hope in writing this article is that it serves as a true representation of the legality of selling tradelines, and allow anyone who is doubtful to become informed and educated on how and why this practice is, was, and will most likely remain to not only function, but to function very well.

I've done my best to deliver the information presented here in a clean, clear, honest, and organized fashion. I'm not speaking from a mere moral perspective or from my emotions, nor am I discussing any ethical aspects of selling tradelines. In addition, and contrary to what you may find from other sources online, I am not speaking from the perspective of a learned idea or biased opinion which has been passed on to me from someone who had no understanding of the facts themselves. No lies, no half-truths, and no misinformation.

I did the research, I read the papers, I saw the quotes, and I came to a undeniable conclusion. Selling tradelines is legal, and that's a fact. I cannot come to any other logical conclusion.