At a time when the rental market is booming, renters need to be more aware than ever that their monthly payments are now being tracked and could factor into their credit report and score. This relatively-new development is especially important for renters who are trying to improve their credit scores in hopes of buying a home in the near future.
In the past, the only time your rent payments made it to your credit report was if you did not make them. However, the reverse was not true. You could have had a perfect history of on-time rent payments, but you would not get rewarded with a higher credit score.
The good news for renters is that today, a good rental payment history can now help you build or rebuild your credit score, particularly after financial hardships such as a foreclosure or bankruptcy.
Credit reporting company Experian began incorporating rental payment history into its credit reports in January 2011. It did this by acquiring a company called RentBureau, which receives rental payment histories from property managers.
Experian says it is the only major credit reporting company to include residential rental payment data in credit reports. Experian spokesperson Kristine Snyder says that, in addition to reporting rental history data into credit reports, Experian also incorporates this information into its VantageScore, meaning a positive rental history could improve your credit score as well.
On-time payment history matters more than ever
If you are applying for a mortgage through Fannie Mae or Freddie Mac, you will not be offered the lowest mortgage rates if you do not have excellent credit scores.
Your credit score is the mortgage lender's barometer of your creditworthiness, and your account payment history counts for 35 percent of that all-important number.
Whether you are applying for a conventional mortgage or a home loans backed by the Federal Housing Administration (FHA), underwriters nowadays are more likely to check your rental payment history, especially if you are not paying down car loans or credit cards, for example. With homeownership rates on the decline, fewer Americans have previous mortgage payments in their credit histories. Therefore, rental payment history has become a more important aspect of credit profiles.
In fact, the FHA's handbook says that housing payments (along with utility payments) are at the top of the food chain when checking a borrower's creditworthiness, even evaluated before payments on installment debts and revolving consumer credit accounts.
Fannie Mae's guidelines are similar: mortgage loan processors are directed to get either a statement from your landlord (if your landlord is a management company) or 12 months of canceled checks from you.
Both FHA and conventional mortgage lenders consider borrowers a greater risk if they have any late rent payments in the preceding 12 months.
Not all landlords report payment histories
Out of the 37 million occupied rental units in the U.S. last year (as estimated by the U.S. Census Bureau), RentBureau receives rent payment information from roughly 7 million of the nation's renters, according Experian.
If your property manager does not report your rental payment history to RentBureau, your rental history does not get factored into your credit report. That alone is reason enough to ask your landlord to report your rental payments to RentBureau.
Other companies reporting rental payment histories
There are several other providers that claim to be putting rent payment histories on credit reports. Probably the best-known is Payment Reporting Builds Credit (PBRC). For a fee, PBRC verifies your payment history with landlords, utilities and other providers. It sells its non-traditional credit reports to creditors, and its data is included in the FICO Expansion Score--but its data is not incorporated into the "tri-merge" reports (an amalgam of credit history reports from the three major credit reporting companies, TransUnion, Equifax and Experian) that most mortgage lenders and automated mortgage underwriting software programs use.
Rent Reporter is another company claiming to get consumer data incorporated into the credit reporting companies' files. Its website says, "Join by completing our rent information form. We do the rest. We verify this information with your landlord and send the data to the credit bureaus."
Dave Blumberg, a spokesperson for TransUnion, says you should be cautious about such claims. "Regarding being a data furnisher to a national credit reporting company," he says, "there are strict reporting guidelines outlined in the Fair Credit Reporting Act (FCRA) that they must follow to be a data provider." He also noted that TransUnion does use alternative data sources, such as utilities data, in its proprietary scoring models.
Do not pay anything to any outfit unless it can prove it is an approved FCRA data furnisher operating under strict rules.
Raising your credit score worth your while
With today's risk-based pricing adjustments, your credit score is more critical than ever to getting an affordable mortgage and minimizing lender fees. If your credit score is on the cusp, even the difference of one credit score point could mean thousands more in payments. If you are renting now with hopes of buying in the future, check your credit history and score and take steps to ensure you are paying your rent on time.