Renters have outnumbered homeowners in more than 20 big cities. Between the year 2006 and 2016, the number of renters has shot up by 8.7 million (data based on Pew Research Center). These are not numbers to be sneezed at. With renters becoming hot property, it is only significant that timely rental payments get their due recognition in credit reports.
Timely rental payment can boost credit score
We have all witnessed how our credit scores get a boost when we pay our mortgage dues on time. Same is the case with credit card payments. Now, paying rent and utility bills on time can similarly enhance our credit scores.
We can now report our rental payments to all the three credit rating agencies; Experian, TransUnion, and Equifax. And just how does it help a renter?
Credit scoring models like FICO 9, FICO XD, and VantageScore compute our credit score, keeping the rental payment data in mind. To offer a perspective, a perfect rental record can give us a boost of almost 20 points on the FICO 9 model.
A very wise move!
One of the key variables of a progressive economy is its consumer credit risk. Creditworthiness is accorded great meaning in present times and bringing rental payment records into the mix is a timely acknowledgment of the force renters have become.
When renters pay their rent on time and keep doing so for a stretch of time, they anticipate some kind of reward for fulfilling a social duty (which strengthens the economy and the country). No such reward had come their way.
Up until now, that is!
How to avail the “rent payment reward”?
Now, the next question which automatically arises is how we can avail of the facility. It just takes a little spadework to ensure that our rental payment is reported to the three agencies.
Things are easier if we rent a big apartment complex because then our property management team is most likely to be associated with a Rent Payment Service that reports data.
On the contrary, if we are renting with a private landlord, it will be wise to sign up with PayYourRent or Cozy or RentTrack (for a very small fee) to ensure that our rental payment is reported.
The positive aspect of renting is that unlike buying a house we are not increasing our mortgage liability. And hence, our credit score does not drop as can be the case when we start on a home mortgage. Put another way, renters already have a headstart and they only need to pay rent on time for a sizeable duration to improve their credit score. And the reward? Well, they can utilize low-interest rates on home loans, car loans, and insurance.
There was a time when credit supplements were ordered by the loan processors but at the best, they could help verify the information of the borrower, without having any power to improve the credit score. Cut to times when large mortgage corporations like Freddie Mac and Fannie Mae are placing importance on rental data for a more precise evaluation of credit score.
A prudent stance, thus, is to utilize credit sparingly, make timely payments of bills, and to get our rental payment reported to the respective rent bureau divisions of credit rating agencies.
A Bonus- with tools like Experian Boost, we can move one step forward with our credit score by reporting payment of phone and utility bills, too.
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