A credit score can be the difference between receiving credit or finding yourself unable to finance anything from a car to a home. Building credit takes time, with you paying the rent on time being consistently reported to the various credit agencies. As an individual, it is important to regularly check your credit report for accuracy. There is a variety of websites that allow you to do so on a yearly basis for free, or more frequently via an annual subscription.
Home owners have a unique advantage in the credit reporting arena. Every month, their mortgage company reports whether they have paid on time or late. Therefore, the average homeowner’s monthly mortgage payment is contributing to and even improving their credit score.
Renters, on the other hand, are not showing this consistent payment on their credit reports. Instead, they are forced to rely more heavily on credit cards and other methods to build their credit score. Yet when going for a home mortgage, those monthly home payments often carry the most weight.
Experian is one of the credit agencies that incorporates positive rent payment into their credit score. “Given that one-third of the U.S. population rents, we felt it was imperative to reflect the true creditworthiness of those individuals who responsibly pay their rent,” said Brannan Johnston, vice president and managing director of Experian RentBureau, in a 2011 news release.
Landlord: Paying the rent should be reported
There are groups that support having landlords report rent payments, just as mortgage payments are reported, so that credit agencies can incorporate that data into their scoring process. After all, even if they incorporate it into a credit report, they still need hard data reported by landlords.
Still, landlords argue that this puts a large burden on them. Think of it from an individual investor who does not have the resources of a large mortgage company. From her perspective, adding reporting to the credit agencies for just a few renters seems time consuming and burdensome, not to mention costly. For larger institutional landlords, this process might not be so difficult.
As more individuals stay renters longer before they make their home purchase, their history of paying the rent on time could play a more critical role in showcasing their ability to pay a mortgage. For many long-term renters, the question is why shouldn’t they also receive the same benefits that homeowners do on their credit report?
There are benefits for landlords as well. When a landlord is willing to report those rent payments can provide an incentive for renters to be on-time every month. According to rentreporter.com, by reporting rent payment history, landlords encourage their tenants to stay put and thus improve their overall credit score. Programs are available to make it easier to accomplish by using one portal to report to all three agencies. Thus, even the small individual landlord can reduce the expenses of reporting, while gaining the positive benefits of retention and on-time payments.
If you are a renter, ask your landlord if they report to the credit agencies. Make it part of your search if you are looking for a new home. After all, you should be receiving the benefits of your on-time monthly payments, thus increasing your score and chances of getting that first time home mortgage.