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Will Paying Rent on Time Help to Boost Your Credit Score?April 25, 2017
If you are someone who has been trying to build their credit history, you may have wondered whether paying your rent on time could have a positive impact on your score. If we were to provide a simple answer to this question, then yes, timely rent payments can in fact boost your credit score. Having said that, you must also understand that a number of criteria need to be satisfied before you can reap any benefits in this regard.
Firstly, it is important to know that a consumer cannot report his own rent payments to a credit bureau. However, you can engage rent reporting services to do this work on your behalf. While some services charge no fee whatsoever, there are others that may demand as much $100 or more for this purpose.
Secondly, depending on the scoring model and formula used, each consumer can have a number of credit scores. While some of these include rent payments in their calculation, there are many that do not. When you apply for credit, you typically don’t know which score or which credit bureau’s report (Experian, TransUnion or Equifax), the lender is likely to use.
Thus, using a rent-reporting service is beneficial only when you know to which bureaus they are going to report your payments, and which credit score calculations are based on rent payments. While all three major credit bureaus include rent payment information (if reported) on their reports, only a few scoring models, such as FICO 9, FICO XD and VantageScore, include it in their calculations.
Many renters use their rent reporting services to connect with the creditors that use scores based on rent payment information to make lending decisions. Additionally, there are many rent reporting companies that tell their customers for which credit cards they can apply; however it should be noted that all these credit scoring formulas also take into account credit card and installment loan related payment history.
Rent information is widely used by those lenders who are seeking consumers that are possibly creditworthy, but may have been overlooked. By using rent-based scores, it may be possible to get approved for large loans; however, in such cases it is quite likely that you would have to rely on a smaller lender.
Nevertheless, the importance of having rental payment information on your credit report cannot be denied. Many landlords examine an applicant’s credit reports and check their credit scores before getting into an agreement to rent out an apartment. Moreover, if a landlord rejects your application based on the information in a credit report, he is required by law to provide you with a notice that describes your rights. Additionally, he must give you instructions as to how you can retrieve a free copy of the report that was used to arrive at the decision.
Some of the popular rent reporting services are Rent Reporters, Rental Kharma, RentTrack, ClearNow and PayYourRent. Out of these, Rent Reporters and RentTrack report payment information to all three bureaus; PayYourRent reports to TransUnion and Experian; RentalKharma reports to TransUnion; while ClearNow reports to Experian. While most of these companies charge fees, in some cases the service may be free for the tenant if it is paid for by the landlord.
Additionally, while signing up for such services, you should make sure that you obtain proper details regarding what steps the company is going to take to protect your personal data, how soon you can expect your payment details to appear on your credit report and what you need to do in case you want to cancel the service.
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