On-Time Rent Payments May Now Improve Credit Score
Paying rent on time may soon improve your credit score. For the first time, landlords have incentives to report rental payment history to credit bureaus. This can be good news for many renters who need ways to boost their score.
Experian recently purchased RentBureau, a credit bureau that allows apartment owners and managers to share rental payment history. Rental payment histories are now factored into Experian’s consumer credit reports, and are one more thing that lenders, landlords, insurance agents, and even employers can learn about you.
It seems surprising that rental payments have not been included in credit reports, but landlords avoided the stringent reporting and auditing requirements, only sending collections and evictions to credit bureaus. This could soon change because landlords will benefit from using RentBureau’s database to make background checks and screen rental applications.
This could be great news for renters who dream of owning their own home. This gives them a way to build up their credit score and qualify for a mortgage with a lower rate.
According to the National Multi Housing Council, 33% of U.S. households are renter-occupied households. Rentals are rising as homeownership in America dropped to its lowest level in 13 years. The Census Bureau reports homeownership rate fell to 66.5% of all households in the last three months of 2010, down from 66.9% in the third quarter.
Many of these renters are college students, recent college graduates, immigrants, victims of foreclosure and people with poor credit. It is difficult for many of these renters to get the credit needed to start building their credit score. A good rental history could help build credit and prove they are creditworthy, even if they don’t have a history with a credit card or a mortgage payment.
Experian displays the 25 most recent months of rental payment history, if it is available. It does not add negative information, such as a collection account, because this is already sent to credit reporting companies through collection agencies. Experian is the the only major credit reporting company to incorporate positive rental payment into consumers’ credit reports.
If reporting rent is successful for Experian, expect other credit reporting agencies to find ways to expand their own reports.
Landlords Can Use Credit Scores to Screen Applicants
Many landlords use credit scores to help pre-screen renters. However, the level of acceptable risk varies by landlord, and there is no universal cutoff score used by all landlords. They also consider other factors such as the ratio of debt and expenses to income. They want renters to be able to pay rent, decrease debt and have enough money left to buy groceries, insurance, and pay other expenses.
If you have a bankruptcy or a negative credit history, it may help to write a note that tells what happened and the steps you are taking to work it out. You can also include a list of references including employers or former landlords. You can even offer a larger deposit on the rental.
On-time payment on utility bills won’t improve your credit score, but outstanding bills can drag it down. If you get behind or stop making payments on your utility bills, the utility company will likely turn your account over to collections. This is a negative mark on your credit report and makes it difficult to rent an apartment or get a mortgage. If you can’t pay your utilities, you are at a higher risk to miss rent payments.
New regulations are trying to help consumers understand their credit reports. If you are turned down for an apartment or utilities because of your credit report, the lender must send you a notice and information on how you can receive a free copy of your credit report. Starting in July, anyone who denies you credit or gives less favorable terms must provide the credit score. This also applies to landlords and utilities.