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Can You Boost Your Credit Score By Paying Your Rent On Time

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)

Here’s Why Your Credit Score May Have Recently Gone Up

Credit Scores and credit reports play a vital role in the life of most Americans today. It determines the interest rates consumers pay for the credit card, mortgages and car loans and can ascertain if they qualify for a loan or not. 

Your credit report may get a makeover as the three big reporting agencies (Experian, Equifax, and TransUnion) are doing things a little differently and have started excluding certain items from your credit report that used to damage your credit. This comes in the wake of a study by the New York Federal Reserve which found problems with credit reporting. It has recommended some reforms to improve the accuracy of their credit reports and also remove some negative items so that it can help consumers’ improve their credit scores. Some of the changes that can boost your all-important three-digit credit scores are:

CREDIT SCORE

1. Tax Liens and Civil Judgments

Because of improved standards for utilizing new and existing public records, Experian, Equifax, and TransUnion have scraped most of the tax liens and civil judgments from consumer credit files in July 2017. Again in April this year, they went a step further by deciding to remove all tax liens from credit reports. Once this data is removed some credit scores can go up by as much as 30 points.

According to an estimate by LexisNexis Risk Solutions, about 11% population had a tax lien or judgment removed from their credit file. 

2. Collections

Credit Bureaus have also been removing certain collection accounts from credit reports under the terms of the National Credit Assistance Plan (NCAP). Since the new rules came into effect in June 2017 some eight million people had collection accounts completely removed from their credit reports, according to the New York Fed.

3. Medical Debt

The new rules will make it harder for medical debt to hurt your credit scores. Medical billing process can be complicated and confusing. To give time to resolve medical issues the three important credit bureaus have agreed to exclude medical bills on credit reports until they are at least 180 days due. Another plus is that unpaid medical bills that later get paid by your insurance should be removed from the credit bureau files so that it does not linger on and damage your score.

4. Fines and Tickets

 Due to the recent changes by NCAP, library fines, unpaid gym memberships or traffic tickets that have been lurking in your life will now be removed from your credit records and not damage your credit score.

As a result of these changes consumers are now witnessing a steady stream of changes which have boosted up their scores and according to the findings of New York Federal Reserve report the:  

  • Credit scores of consumers’ have gone up by 11 points on an average.
  • 18% of people saw credit scores go up by 30 points. In some cases, this increase was enough to make a difference between qualifying for a loan and getting it turned down.
  • About 8 million people had collection accounts completely removed from their credit reports after the second half of 2017.
  • The study also found $11 billion reductions in the total collection account balances.

According to Bruce McClary, Vice president of Communications at the National Foundation of Credit Counseling, “If anyone has experienced a jump in their credit scores due to these changes, they should take advantage of the momentum and work towards improving their credit health.”

If your credit score has also seen an increase, you could consider calling your credit card company and negotiate a lower interest rate. This can result in major savings.

The other financial moves you could consider with this better score is taking out a new loan for a mortgage, refinancing your car, getting a better credit card or checking insurance rates, said Kimberly Palmer, the personal finance expert at NerdWallet.  However, you should be strategic, she added.

It is important to note that because of the prevalence of reporting errors, FICO recommends that you should double-check your reports for inaccuracies that can hurt your score.  The recipe to keep your score moving and reaching a good score is that you should consistently pay your bills on time and keep your credit utilization low. You should also apply for credit only when needed and reduce the amount of debt you owe as much as possible.