Tradelines and The Impact on Your Credit Score

by | Mar 16, 2022 | Business Line of Credit | 0 comments

Many people often get confused about what a business tradeline is and the impact that a business tradeline can have on a company’s credit score. A business tradelines are simply a credit-based account between a vendor and a business. So, for example, if your small business needs to buy supplies, you might open a statement with the supplier to procure the goods you need more quickly. This is what is known as a tradeline. Generally, when you have a tradeline in place, you have up to 30 days to pay for the goods or services you have purchased. Meaning you do not have to come up with the cash upfront.

Indeed, there are several essential benefits to tradelines, the primary one being that you don’t have to have the money on hand to get the supplies you need. Especially if the products or services you are buying are required to generate revenue, with a tradeline, you now have a cushion during which you can work on making money and thus have the funds to pay the vendor or supplier.

Another critical benefit of tradelines is that some vendors will report to credit reporting agencies such as Dunn and Bradstreet or Experian. This, in turn, will help you as a small business build up that credit score. The key is to make sure that you pay your tradelines promptly. Falling behind is going to hurt your credit track record.

Pros and Cons of Tradelines

Beyond what is mentioned above, some of the other benefits of having tradelines are:

  • They can be easier to get approved for than a more traditional business loan.
  • You can maintain a better cash flow position because you don’t have to come up with the money right away.
  • As a startup, it can be challenging to get a loan. Not to mention you might not have the cash on hand right away to get the supplies you need. This is where a tradeline works to your advantage.

Among some of the drawbacks of tradelines are:

  • Versus other types of business loans, tradelines can be small, especially at first, especially if you are a newer business.
  • You are limited to only what you can purchase with that particular vendor or supplier.
  • Depending on the terms of the tradeline, there could be fees attached.
  • This may limit your ability to shop around for more significant discounts.

How Does a Tradeline Affect Your Credit Score?

As mentioned, having a tradeline with a vendor can help your credit score as long as you pay the money owed on time. However, there are a couple of things to keep in mind where tradelines and credit scores are concerned. For example, you don’t want to overdo it. That is to say, having numerous tradelines open with multiple vendors can get you into trouble. But then again, you don’t want to have too few tradelines. Rule of thumb suggests that 2 to 3 tradelines are ideal.

Also, you want to be sure and keep your tradelines active. Even if you purchase something small, this is important in exercising the credit that the vendor or supplier has extended to you.

And again, always make sure you pay when the invoice comes due. If you fail to pay and the vendor reports it to a credit reporting agency, this will lower your credit score. Not to mention, that vendor could effectively become a reference for future vendors with which you work. They have to say about you, and your creditworthiness will impact your ability to get additional trade lines.

How to Get a Tradeline for Your Small Business

The easy way to go about it is to ask. Suppose there is a vendor or supplier with whom you do business frequently, and you are interested in establishing a tradeline with that company. In that case, it never hurts to ask if this would be a possibility. Ideally, you want to have a relationship with them before establishing a tradeline, one that is in good standing. Also, do some research. See what vendors are relevant to your industry. Look into what your competitors use as far as their preferred vendors and suppliers.

First Union Lending Can Help

Our goal is to help you thrive and succeed. This is why we do what we do. We offer short-term loans, merchant cash advances, and SBA loans, among other financing types. With resources ranging from $5000-$1 million, we have the cash on hand to help you now, not weeks or months from now. If you need additional working capital, we have a solution for you. Call today!