Whether you’re trying to find an apartment, finance a car, or juggle unexpected expenses, your credit matters. Good credit puts you in front of the line for the things you value most.
Credit builds over time by making monthly installment payments. The traditional way of creating a credit profile is to start small, like a low-limit credit card. After a series of on-time payments, the bank may increase that credit limit. At some point, a consumer may qualify for longer-term installment accounts like a car loan.
These traditional steps often lead to an average credit profile, which is a great place to begin. To move into the good or excellent categories, however, takes time and additional credit accounts, like multiple credit cards, a credit line, or a 30-year mortgage.
But for nearly 30-40% of the population, vaulting credit from average to excellent takes far longer. That’s because these consumers are renters.
Homeowners solidify their credit ratings each time they pay their biggest monthly expense. But renters, who already are dedicating as much as 40% of their income to housing and face rising costs each year, fall into limbo because they are not gaining the credit they deserve. Good tenants are entitled to convert on-time rent payments to rent credit.
What Your Credit Is Costing You
Many consumers don’t realize the hidden costs of losing the credit game. People with excellent credit are not only getting the best deals — they’re also saving money.
Without a mortgage payment, renters are relegated to building credit the old-fashioned way: opening new revolving charge accounts. The problem with this strategy is that these accounts cost money. Application fees, closing costs, high interest rates, and annual fees add up quickly. It also is more difficult to juggle the varied due dates and avoid over-limit and late payment penalties — and the resulting negative entries on the consumer’s credit report.
Finance companies offer premium rates to customers with the best credit profiles. That might not seem like a big deal when you compare rates side by side, but a difference of even one percentage point on an installment loan could add up to hundreds of dollars over the course of a year. Combine that with lower rates on credit cards, and that means more disposable income to invest or put into savings for a down payment — steps needed to grow wealth.
Losing out on those premium interest rates and savings while facing increased costs of living can force tenants into a credit limbo, delaying the realization of their financial goals.
It also forces the best tenants to compete for rental housing vacancies with tenants who don’t always pay their bills. Where rent payment history doesn’t count for good tenants, it also won’t hurt bad tenants.
Does Paying Rent Build Credit
What if renters could convert rent to credit? Does paying rent build credit?
To receive credit for installment payments, creditors must report the consumer’s payment history to the credit bureaus. These are the agencies tasked with maintaining consumer credit reports.
Unfortunately for most renters, the landlord’s rent pay options do not allow the tenant to build rent credit. Not unless the landlord reports rent payments to a credit bureau.
Only recently has that option been made available to landlords. But now, with the help of Landlord Credit Bureau, a credit reporting agency, landlords can provide tenants with the option of turning rent to credit.
Paying rent does build credit — if the landlord is reporting the rent pay history to a credit bureau.
How to Turn Rent Pay to Rent Credit
Tenants already are paying rent each month. The lease agreement is an installment payment contract. In practice, there is little difference between a lease on a home and a lease on a car. But chances are a tenant is paying more for rent than for their car. Why not get credit for rent paid?
Now that the major credit bureaus have agreed to accept rent pay data on consumer credit reports, tenants can build credit at the same time they pay rent. A tenant’s largest monthly expense now can be put to good use — to improve credit and increase the chance of qualifying for money-saving perks.
Paying Rent Builds Credit and Rent History Simultaneously
Bolstering a credit profile is not the only benefit tenants enjoy when a landlord reports rent payments to a credit bureau. Those on-time rent payments translate into a better rental history. The Tenant Record that corresponds to rent pay habits can be shared with prospective landlords, allowing a tenant to provide evidence of their qualifications.
Landlords suffer a disadvantage when rent payment history is not recorded. It becomes difficult, if not impossible, to distinguish a tenant who routinely paid rent on time each month from someone who may have skipped rent or paid late. By presenting the new landlord with the Tenant Record showing the rent payment history throughout the previous lease term, good tenants stand out in the crowd.
The tenant’s reputation for good payment history will, likewise, be reflected in their consumer credit report.