The apparent “American Dream” of owning a home is changing. For many people, renting not only suits their need for flexibility but it is also an economic necessity due to soaring student loan debt and rising prices.
Credit History and Rent Payments
Credit history plays a vital role in your life and it is necessary for accessing bank loans, credit cards, mortgages, and auto loans. About 45 million people in the US who have a solid track record of paying rent on time (which constitutes 35% of their income) lack a credit score. A pilot program in New York found that credit scores of 76% of renters can be raised by tracking on-time rental payments.
Rent is one of the largest monthly payment that you make. All these timely payments should count for something right? So does it mean that your rent payments can affect your credit score? The simple answer is not necessarily. The track record of on-time payments does not reflect on your credit history but fortunately, the situation is changing for the better and timely payments can boost your credit score. Several criteria need to be satisfied before you reap the benefits.
How Can You Get Your Rental History on Your Reports
If you are currently renting or intend renting, it is important to understand that a consumer cannot report his rental payments to a credit bureau. Here are some tips that will help you as to how you can go about getting your rental payments on your credit reports.
1. Many landlords began sharing rental data to credit bureaus after 2011 when they began to include rental history to credit reports and credit scores. Some landlords also offer online systems that report rental payments. However, it is not a universal practice for landlords to “automatically” report rental data. So you should, first of all, ask your landlord or property manager if they report rental payments to the credit bureaus or not. As your rental payments will affect your credit score if your credit report does not reflect your payment history.
2. If you rent from property management or individual landlord who does not report data, you should pay your rent through a rental payment service. Some of the popular renting services are Rent Reporters, RentTrack, Experian RentBureau, Rental Karma, ClearNow and PayYourRent. All these do not report rental payments to all three bureaus. While RentReporters and RentTrack report to all three bureaus, PayYour Rent reports to Experian and TransUnion, ClearNow reports to Experian and Rental Karma reports to TransUnion. It is to be noted that the above does not include all the rent reporting services. Some of these services do not charge any fees whatsoever but there are others that charge you as much as $100 or more for their services.
3. Each consumer can have a number of credit scores depending on the formula and scoring model. Some of these may include rent payments in their reports while others may not. So when you apply for credit you do not know which credit bureau ( TransUnion, Equifax or Experian) report or which score the lender is likely to use.
4. Finally, you should keep in mind that while calculating your credit scores only the newest credit scores consider rental data. FICO 9 and FICO XD do use rental data to calculate scores whereas the most commonly used versions of FICO® Score do not do so.
Vantage Score is a more popular credit scoring option with lenders as it has been reporting utilities and rental payments for many years now. According to VantageScore “By adding rental payments to credit reports more than 30 million consumers who do not have a credit history will be able to have a credit score and they will be able to borrow.”
How Will This Impact Your Score?
It is difficult to say how much reporting credit bureaus will affect your credit scores as it depends on your current credit history. However, there are some interesting studies on the subject.
1. An Experian study showed that 100% of tenants who did not have a credit score before had a credit score after reporting rent, and almost three-fourths of the people who were studied experienced a credit score increase.
2. A study by TransUnion showed that eight out of ten subprime borrowers had an increase in their VantageScore after only one month of reporting rent payments.
3. Lastly, a study from RentTrack found that reporting rent payments for 6 months increased their VantageScore by about 9 points and the average increase for those with a credit score below 650 was 29 points.
Using Your Credit Card to Pay Your Rent
You can indirectly boost your credit score by using your credit card to pay your rent. (that is if your landlord accepts credit card as a payment mode) . If you pay your credit card balance in time it will help you boost your credit score. But you should be aware that some landlords may charge you a processing fee if you use your credit card for paying rent.
TO KNOW MORE ABOUT YOUR CREDIT REPORTS AND CREDIT SCORE CONTACT US AT (800) 400-ZINU(9468)