February 22nd, 2011
Fresh Changes to Credit Reports – Your Rent Payment Matters Too
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A change is gonna come… and if you are a renter, it could be great news for your credit report.
Experian, one of the big three credit bureaus, began including rental payment data on consumer credit reports in January, and will affect the Experian credit score and VantageScore. It’ll be a good addition to most consumers’ credit toolbox, but as with all big changes, there could be a downside.
Right now, Experian has gathered rent payment history from large property managers of approximately 8 million residents nationwide, but reporting rental data could easily become a more widespread practice amongst credit bureaus. Getting a hold of more specific details and data of consumers’ financial lives would be hard for lenders and banks to pass up, since it could help them better assess individuals’ creditworthiness.
Since the rest of the credit bureaus may take a page from Experian’s book, all renters should know the good, and not so good, sides of this credit report development.
The good news is… the addition of rental payment data helps consumers’ credit reports.
Experian is only reporting positive rental payment data, so if you are responsible with your payments and pay on time, this data can only help to build your credit.
Before, rent payments could only affect consumers’ credit reports when an account was sent to collections, and ended up damaging their credit. Now, renters get good karma for being responsible with rent. It’s excellent news for many consumers, whose rent payments take up the biggest chunk of their budget.
For thin file consumers with no mortgage or credit cards, adding rental payment history can essentially establish their credit on their Experian credit file. Positive rental payment history, just like mortgage payments or credit card payments, would help grow their credit history.
The catch is… the addition of rental payment data can only stand to help consumers’ credit report— for now.
If you’ve been lax on rent payments lately or have a spotty payment history, start paying on time now. Experian anticipates adding negative accounts to credit reports by next year, meaning bad payment habits could start to cost you on your credit report. And unlike credit card issuers, who consider an account delinquent after being 30 days past due, rental properties usually consider payments late after only 5 days.
How many times has “Pay on time” been drilled as the de facto mantra of credit building? Here it goes one more time. On-time payment history is a crucial credit factor whether you own a credit card, house, loan, — or rent an apartment. Experian’s move to include non bank-related data–such as rental payments–may quickly become a credit trend amongst the other bureaus, and to balance the scales, that likely means positive and negative accounts.
Break bad habits now and always pay on time to take advantage of rent payments as a not-to-miss credit-building tool.
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