Your credit score is an indication of your financial responsibility, which is why lenders and landlords look at your credit score before deciding to lend to you or rent to you. Your credit score is positively impacted when you make payments on time and negatively impacted when you miss payments.
As most people delay purchasing homes and vehicles until later in life, it’s become tough to build your credit profile. Fortunately, credit bureaus are beginning to account for rent payments as they calculate credit scores. In this article, we’ll talk about how to use this to your advantage. Before that, though, let’s examine how your credit score changes and what impacts your score.
Your credit score can change monthly based on new information that affects your credit. Here are the top factors that influence your score:
- Payment history
- Length of credit history
- New credit inquiries
- Amounts owed
- Types of credit
- Available credit
Your credit score will increase or decrease depending on how recently you opened a new account, how much available credit you have, how much money you owe on payments, and how long your credit history has existed.
How Does Renting Affect Your Credit Compared to Buying?
When you choose to buy a house and pay a mortgage, you’re building credit history. By making your payments on time, you can effectively boost your credit score. However, when you take out a mortgage, it’s possible your credit score will drop from the process of getting a loan, the lowering of your credit availability, and the new account on your credit report. That being said, a mortgage is considered responsible debt and as long as you’re making payments on time, your credit score will not be dramatically affected.
If you prefer to rent, then you’re in luck because renting won’t negatively impact your credit score as long as you pay rent on time. And by choosing to rent, you don’t have to take out a loan and add an additional account to your report. Renting doesn’t require the same financial burden as buying. Plus, reporting your timely rent payments can actually boost your credit score. Next, we’ll look into how exactly renting can boost your score.
Pay Rent On Time
If you’re looking to boost your credit score, then renting can help if you pay rent on time. There are over 111 million tenants in the U.S. today and for a large percentage of those renters, paying rent is one of the biggest payments they make each month. While credit card payments are automatically reported to credit agencies, not everyone’s rent payments are reported to the credit bureaus. Assuming you pay rent on time, having your timely rent payments reported to credit bureaus may have a positive impact on your credit score.
Report Your Rent Payments
In order for credit bureaus to factor in your rent payments, the payments have to be reported to the bureaus. Large property managers, DIY landlords, and even tenants themselves can report rent payments.
See the Difference in Your Credit Score
Assuming you pay rent on time, tracking your rent payments may increase your credit score. more about how long it takes for your credit report to update.
There are two types of scores that can be calculated. Both range from 300 to 850 and consider similar elements that determine your credit score. One is your FICO score. The newest FICO scoring model, FICO 9, includes rent payments as one of the factors that influence your score.
The second type of score is your VantageScore, which was developed by the The scoring model for VantageScore factors in rent reporting to its score. If you’re working with a lender that is considering your VantageScore (which will be on your TransUnion report), then rent reporting can be a fast fix to improving your score.
Soft Inquiry Credit Checks Don’t Hurt Your Credit Score
When you apply for a rental property, there’s a chance your credit score can be affected. It depends whether the credit check is a hard inquiry or a soft inquiry. Soft inquiries do not hurt your credit score, so we recommend making sure your landlord is requiring a service that uses soft inquiry credit checks. This will ensure your credit score is not affected by the rental application process.
Besides paying rent on time and reporting your timely payments, you should also avoid the following things that hurt your credit score:
- Missing a credit card payment
- Opening new credit accounts
- Closing old accounts
- Defaulting on a credit account
- Having your credit limit reduced
If you pay rent online, your rent payments can be automatically reported. This is a benefit of paying rent through an un-biased third party service.
For more tips, continue reading how to improve your credit health.
At Rentalutions, our end-to-end software allows tenants to apply for rental properties, sign leases, pay rent online, and manage maintenance all in one place. More than 26,000 landlords and their tenants use our platform in 8,000+ zip codes across the country.