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Can rent payments help your credit score?

By   |  Posted in First-Time Homebuyers

credit scoreA survey conducted by TransUnion found that nearly half of renters mistakenly believed that their rent payment history was automatically reported to credit bureaus. That's not true, and that's too bad - TransUnion analysts concluded that nearly 80 percent of renters would benefit from the inclusion of their rent payment history.

Since 2011, credit bureaus have begun incorporating rental history into reports and credit scores, and landlords are increasingly sharing their data. Renters who want to buy homes in the future should be aware that their monthly payments may affect their credit score, and with it their ability to get a mortgage.

How to get your rent payments included in your credit report

The good news for renters is that a solid rental-payment history can now help you build -- or rebuild -- your credit score, particularly after financial hardships such as a foreclosure or bankruptcy.

Experian began adding rental payment history to its credit reports in January 2011. It managed this by acquiring a company called RentBureau, which receives rental payment histories from its property management members. In addition to reporting rental history data, Experian also incorporates this information into its VantageScore, meaning a positive rental history could improve your credit score as well.

In 2014, both Experian and TransUnion began accepting rental history data from a firm called RentTrack. Monthly rental payments are tracked through this website, allowing renters to build credit with each on-time payment. If your landlord doesn’t participate, there is a button labeled "Invite Your Landlord" on RentTrack.com.

TransUnion is also introducing its own service for landlords to report renters' monthly payments. Known as ResidentCredit. This system allows property managers with at least 100 units to report tenant payment information to all three credit bureaus.

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.

Read: 8 ways to increase your credit score to get the lowest mortgage rates

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. 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.

Other companies reporting rental payment histories

There are several other providers that claim to be putting rent-payment histories on credit reports:

  • PBRC (which stands for Payment Reporting Builds Credit) verifies your payment history with landlords, utilities and other providers. It creates and sells its non-traditional credit reports to creditors. It does not report to the "big three" bureaus, and says on its website, "PRBC is a registered Credit Reporting Agency just like those companies but uses ‘non-traditional information’ (utility, mobile phone, and other bills) to build your score. PRBC does not affect the reports of these other companies."
  • RentReporters.com is another company claiming to get consumer data incorporated into credit reports, and it promises to retroactively report up to 24 months of rent history. Its website says, "Your rental payment history is placed onto your consumer credit report within 15 days." However, the site does not say which credit bureaus it reports to.
  • Rental Kharma is a rent reporting service. It costs $40 to set up and then $9.95 per month. After you sign up, you can prove your payment history with bank statements, cancelled checks, or by contacting your landlord. Payments are reported to TransUnion and can go back as far as two years.

Renter beware

Dave Blumberg, a spokesperson for TransUnion, says you should be cautious when registering with these companies. "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 of these providers unless it can prove it is an approved FCRA data furnisher operating under strict rules, and that it reports to at least one of the major bureaus.

Raising your credit score can save thousands

With today's risk-based pricing, 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 a one point increase could save you thousands. If you are renting now with hopes of buying a home in the future, check your credit history and score and take steps to ensure you are paying your rent on time.

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