Having a poor or non-existent credit history can make getting a home loan more challenging. You don’t need a perfect credit score to get loan approval, but you do need to show financial responsibility. As a renter, you might have been making regular payments for years. These unfortunately won’t usually show up on your credit report unless you make it happen.
Rent reporting is a service that either you or your landlord have to set up on your own. Once you do, the major credit bureaus will begin to include them in your official reports.
Experian, Equifax and Transunion are the three major credit bureaus responsible for compiling your financial information. They include your credit score which comes from either FICO or VantageScore. Whether or not reported rent payments show up in your score depends upon the scoring company.
Currently, FICO uses several versions of their model. This can impact how your score shows up. Lenders who use older versions might not see the rent payments reflected in your score. FICO 9 and FICO 10 are updated versions that do show reported payments. Knowing which version is being used to check your score can help you see how much influence the rent payments have on your standing.
Some property managers currently offer rent reporting. They do so to help tenants stay motivated for making regular payments that build credit. This amenity is usually free for tenants but you will want to make sure to pay your rent on time every month. You also can ask your landlord to sign up for a service if it is not included as part of your rental package.
Now that some credit bureaus are acknowledging rent payments, you’ll find companies that offer reporting services. Many companies offer as much as six months to two years of past rental history reporting. Independent reporting services do charge fees. These usually involve having to pay a larger enrollment fee or initial cost to get started. Then, you might need to pay a smaller monthly fee to continue the service.
One of the biggest things to check for in a rent reporting company is which credit bureaus they report to each month. Ideally, a service should report to all three, but it might still be worth it if they report to the one you are concerned about the most. You’ll also want to find out how far back they go to show your previous rental history and how soon you’ll see changes on your report.
One of the few downsides of rent reporting is that it can be difficult to know whether or not it will show up in your credit score. This is why many people find it best to use multiple methods to boost their credit history. You could choose to get a secured credit card or be listed as an authorized user on someone else's who has a good credit history. Using multiple strategies can help you see results faster.
Trying to get a loan when you lack a lengthy credit history is an age-old challenge faced by many home buyers. Using your rental history as a method to improve your credit score is an effective way to demonstrate more financial responsibility. Just remember to make sure that you explore all of your options for building credit and keep making smart decisions. All of your hard work will pay off when you get that much needed home loan approval.