Renting your home? Learn this simple way to report on-time rent payments to credit bureaus and improve your credit
Nearly half of Americans have poor or no credit scores, largely preventing them from gaining access to lending, housing or other financial opportunities — and ultimately impeding their ability to build wealth. But many consumers don’t realize that reporting on-time rent payments to the credit bureaus is a simple way to establish or build credit.
In this article, we’ll share basic details about credit scores and share how renters can use Azibo’s rent reporting platform to report on-time rent payments to credit bureaus in order to boost their credit score.
When landlords, banks, and credit card companies alike check your credit score, they’re wondering whether you’re able to manage debt and make on-time payments. For them, this three-digit number is a track record of your ability to borrow money and pay it back within the agreed-upon terms. To these institutions, a glimpse into your financial past can help predict your future actions when it comes to mortgages and loans, insurance, credit cards, and more.
Credit scores impact much more than you might realize. It’s common knowledge that having a good credit score can help with routine background checks, like those conducted by a potential landlord. But did you know that your credit score can also cost (or save) you thousands of dollars when you seek a loan for a major purchase, such as a mortgage for your first house? To offset the risk of working with what they deem less desirable borrowers, lenders routinely charge applicants with bad credit scores much higher interest rates or demand larger down payments.
In an ideal world, borrowers would pay back in full every month, never go over their credit limit, and promptly deliver each payment. However, this isn’t always achievable. Everyone faces unique circumstances, and some groups have more hurdles to being an “ideal borrower.”
One of the more common hurdles is having to pay rent. Rent is the single largest monthly expense among renters, often encompassing 30% to 50% of a household’s total income. However, historically, paying rent did not have an impact on credit scores, since it’s technically not a debt paid. Each month, this large payment is effectively invisible to banks, credit card companies and credit bureaus. As a result, over 45 million Americans today are “credit invisible” and more than 70 million have thin credit profiles.
Since lenders and landlords both seek applicants with high credit scores, actively building yours can help give you access to financial opportunities. If you’re renting and want to boost your credit score, rent reporting can help you make a good financial impression.
Rent reporting is the process of sharing your history of on-time rent payments with credit bureaus. While you can’t report rent payments directly, rent reporting services can easily do so at an affordable rate — especially when you consider the savings you’ll incur by having a higher credit score. In fact, the three most popular credit bureaus (Equifax, Experian and TransUnion) will all include rent payment information in their credit reports, if they receive it.
Reporting your rent payments can have a significant impact on your credit score. In a large-scale Credit Builders Alliance-sponsored pilot program, 97% of participating residents stated that reporting their on-time rent payments was an effective way for them to build their credit. What’s more, one estimate suggested that reporting up to a year’s worth of rent can improve credit scores by an average of 47 points.
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This article and the Azibo Blog in general is intended for informational and educational purposes only. It is not investment, tax, financial planning, legal, or real estate advice. Please consult your own experts for advice in these areas. Azibo provides information believed to be accurate, but Azibo makes no representations or warranties about the accuracy or completeness of the information contained on this article or blog.