Does Rent Affect Your Credit Score?

However, paying rent on time does not immediately create your credit history or raise your credit score.

A credit score indicates a person's capacity as a borrower to repay the borrowed sum. Having a good credit score can help lenders trust you more. A strong credit score increases the likelihood that consumers will be approved for credit cards with reasonable rates and loans. Therefore, it is important to show creditors that you can manage finances responsibly and build a decent credit score.

Many people also believe that paying bills like rent and other utilities would assist in strengthening credit. This is only half correct, however. This implies that your credit score won't show the progress it would if you made loan or credit card payments even if you pay your rent every month. Still, failing to pay rent will have a bad effect on your credit score as well.

These are some things you should be aware of on how your rent payments affect your credit score and report.

Are Rent Payments Useful in Boosting Credit Scores?

Not included in the payment history that accounts for 35% of FICO's credit score are rent payments. FICO ratings have no bearing on your past credit card, retail account, installment loan, mortgage, or student loan payback history. The three credit referencing companies do not show your capacity to pay fixed costs such as rent, phone bills, or insurance payments.

Consequently, utility providers and landlords usually do not forward your payment activity to Equifax, Experian, or TransUnion. Thus, timely rent payments will not show up on anyone's credit records and thus will not help to raise the credit score like an on-time loan or credit card debt payment would do.

Stated differently, paying household expenses does not help to develop credit. Rebuilding requires credit, hence if you want to see your credit score rise, If properly handled, products such as retail credit cards, secured credit cards, and installment loans may help build a credit history.

In this article, learn how unpaid rent hurts your credit.

Paying rent on time may not, however, improve your credit score, but not paying rent on time and subsequently being reported to a collection agency will certainly hurt your score. If you become too much in arrears on rent, your landlord might hand over your rent unpaid amount to a collections agency or even sue you. Collection accounts and civil court judgments hurt your credit score by doing the following.

• Lowering your credit scores: Any unpaid debts that are handed over to a collection agency are reported to the credit bureaus and reflected on your credit reports. Collection accounts can remain in your credit file for as long as 7 years and their presence will continue to lower your credit score. A single small collection account is enough to pull down your credit scores by as much as 100 points or even more.
• Making other creditors less likely to lend to you: As mentioned earlier, lenders have a very negative perception of borrowers with recent collections. If you apply for any type of consumer credit such as a credit card, auto loan, or mortgage with collections or judgments on your credit, you are likely to be rejected or the lender will approve you for credit with a higher interest rate.
• Signaling future repayment risk: From a lender’s point of view, failure to meet other financial obligations such as paying rent meant that one may be unable to repay the loan as well. Credit scoring models consider this increased risk when assigning your score.

What’s more, paying your rent on time has no bearing on your credit score, but damages stemming from unpaid rent certainly do. That being said, renters should strive to pay rent on time whenever possible to ensure that they do not end up with such collections accounts that pull down their scores.

Special Credit Reporting Services

Rent payments used to past times could not in any manner help to improve credit. For some tenants, new services are changing this, however. Specialized credit reporting companies now let landlords and property managers track tenant payment habits.

Rent Reporters is the largest rent reporting organization now in use; while just starting in 2017, it has thousands of American rental properties joined up. Where the contract so specifies, TransUnion, Experian, and Equifax with credit bureau data perform on-time rent payment reporting. This enables conscientious tenants to build a credit record even in the absence of credit accounts.

Following the data, program participants had improved credit ratings within the first three months of on-time payments being recorded. Still, participating in one of these unique rent-related special reporting schemes counts against your credit. Many landlords do not record payments to the main credit agencies without the renters telling them to.

What Other Ways Can You Establish Credit When You Do Not Own A Credit Card?

Nevertheless, one can establish credit without rent reports from the landlord or credit cards as a major way. Here are a few options to consider.

• Apply for a secured credit card: Secured cards, on the other hand, are affiliated with a cash deposit that is used as your credit line. It makes approval more favorable for individuals with little credit history. Responsible use helps set a good payment record.
• Become an authorized user: You can ride on someone else’s coattails to a good credit card history if you are added to an account by a parent, spouse, friend, or any other relative. Their card activity is reported to the credit reporting agencies.
• Take out an installment loan: Thus, online lenders offer personal loans even to applicants with fair credit. Since installment loans are paid off at fixed monthly payments as agreed, one can easily witness improved poor credit scores within the shortest duration.
• Use reporting agency Experian Boost: Experian allows you to connect bank statements and utility bills to your Experian credit report for free. Paying your telecom and utility bills on time enables you to increase your Experian credit score instantly.
• Check your credit reports routinely: Be proactive about your credit and monitor your Equifax, Experian, and TransUnion credit reports annually to ensure errors or fraudulent actions are not being committed on your account. Challenge any discrepancies found as soon as possible. This is where you need to keep a close eye on your credit.

In summary, one’s ability to pay household bills on time is important for overall financial well-being but does not commonly enhance the credit rating. That is where credit reporting programs can make a difference. Otherwise, maintaining a positive payment history necessary for the use of credit in terms of credit cards, loans, or other lines. However, it is still important to avoid negative entries on your credit history in the long run, such as from unpaid rent.

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