First-time home buyers can benefit from rent disclosure

ByRichard C. Sloan

Apr 18, 2022
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If you’re starting to get spring fever and life circumstances are pushing you to switch from renting to buying a home, it’s time to assess your financial health. In an ultra-competitive market, being prepared can make or break your chances of getting the right home.

Renters are often surprised to learn that most rent payments, arguably their household’s biggest monthly expense, don’t show up on credit reports. This means tenants don’t get credit for paying their rent on time on the most important financial record that lenders use to assess creditworthiness.

Lack of payment visibility is also a big problem for lenders, who want to get as complete a financial picture as possible when assessing whether someone is likely to repay borrowed money to buy a home.

It complicates the fact that rent can show up on a credit report if you don’t pay it. This is because unpaid rent can be referred to a collection agency, which reports it to the credit bureaus. So consumers don’t get the credit they deserve for paying on time, but could be harmed if they don’t.

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Why do on-time rent payments show up so little on credit reports?

Basically, it’s because we have a very diffuse rental market. Many rental units are provided by small landlords who rent out a few properties. But there are larger landlords and property management companies that have the resources to report to the credit bureaus. They can handle the accuracy requirements that come with reports.

More and more rental companies are providing payment data to credit bureaus, but we still have a long way to go.

Mortgage lenders want to be sure that you will meet your monthly obligation before they decide to give you a loan large enough to buy a home. The more data they can see that allows them to make this decision, the more responsibly they can qualify for loans. Rental data is important, as are utility bills, cell phone payments, and other recurring monthly payments.

How can you make sure you get credit for paying rent?

To allow a more complete picture of their spending history, tenants can allow lenders to view their rental payment history.

For landlords or property management companies who do not report rental payments to consumer reporting agencies, tenants may be able to “self-report” their rental payments using one of several services available online. For example, Equifax and TransUnion also partner with several services that allow you to report your lease payments and add this information to your credit file.

2020 research published by the Department of Housing and Urban Development (HUD) and the Policy and Economics Research Council (PERC) highlighted the potential impact of expanding rent reporting. The study showed that when social housing authorities report positive and negative rent payment histories, up to 61% of tenants’ credit scores increased.

What about other one-time payments?

According to the Federal Reserve, 63 million American adults are either unbanked or underbanked and rely on more expensive alternative financial products. Credit bureaus nationwide are working to help lenders more accurately assess the creditworthiness of these consumers. By expanding what credit reports capture from rent and utility payments, and even payments to telecommunications and streaming services, credit bureaus are helping millions more consumers access fair and affordable credit.

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For example, Experian Boost is a free feature that allows consumers to add positive payments for services such as utilities, telecommunications, and even video streaming services, directly to their Experian credit report for an opportunity to Instantly increase their credit score. And Equifax offers a Payment Insights solution that allows consumers to share utility and telecommunications payment history with banks or lenders when applying for loans and other services.

To keep an eye on the contents of your credit report, you can access it for free at any time at annualcreditreport.com. The three national credit bureaus recently announced the extension of free weekly consumer credit reports through the end of 2022. This will continue to help consumers manage their financial health during the ongoing economic challenges and uncertainty caused by covid-19 and develop better monitoring habits. their long-term credit.

The types of data that shape your credit history are changing rapidly. Getting credit for as much of your positive payment history as possible can speed up how quickly you walk through the door of your own home.

Francis Creighton is the president and CEO of the Washington-based Consumer Data Industry Association.