Lack of visibility of payments is also a big problem for lenders, who want to have as complete a financial picture as possible when assessing whether someone is likely to repay the money borrowed to buy a home.
Complicating this is the fact that rent can appear on a credit report if you do not pay. This is because unpaid rent can be referred to a collection service, which reports it to the credit bureaus. Thus, consumers do not get the credit they deserve for their timely payment, but they could suffer when they do not.
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Why are there so few timely rent payments on credit reports?
Basically, it’s because we have a very diffuse rental market. Many rental houses are provided by small landlords who rent a few properties. There are, however, larger homeowners and property management companies that have the resources to report to credit bureaus. They can manage the accuracy requirements that accompany the report.
More and more rental companies are providing payment data to their credit bureaus, but we still have a long way to go.
Mortgage lenders want to make sure that you meet your monthly obligation before they decide to give you a large enough loan to buy a home. The more data they can see that allows them to make this decision, the more people can qualify for loans. Rental data is important, but so are utility bills, cell phone payments and other recurring monthly payments.
How can you make sure you get credit for paying rent?
To get a more complete picture of their spending history, tenants can give lenders permission to view their rent payment history.
For landlords or property management companies who do not report rent payments to consumer reporting agencies, tenants may be able to “self-report” rent payments using one of the many services available online. For example, Equifax and TransUnion They also work with many services that allow you to report rental payments and add this information to your credit report.
2020 Survey released by the Ministry of Housing and Urban Development (HUD) and the Political and Economic Research Council (PERC) highlighted the potential impact of the expanded rent reporting. The study showed that when public housing authorities report positive and negative rental payment histories, they increased up to 61 percent of tenants’ credit scores.
What about other timely payments?
Sixty-three million American adults are either without banks or sub-banks and rely on higher-cost alternative financial products, according to the Federal Reserve. National credit bureaus are working to help lenders assess the creditworthiness of these consumers more accurately. By extending credit reports 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 it’s one Free feature that allows consumers to add positive payments for services such as utilities, telecommunications and even video streaming services, directly to the Experian credit file for an opportunity to instantly increase their credit score. And Equifax offers a Payment information solution that enables consumers to share utility and telecommunications payment history with banks or lenders when applying for loans and other services.
To keep track of what is in your credit report, you can access it for free at any time yearcreditreport.com. The three national credit bureaus recently announced the extension of free weekly credit reports to consumers by the end of 2022. This will continue to help consumers manage their financial health during the ongoing difficulty and financial uncertainty caused by Covid -19 and develop better habits regarding tracking their credit in the long run.
The types of data that shape your credit history change rapidly. Getting credit for as many of your positive payment histories as possible can speed up how soon you will be knocking on your door.
Francis Creighton is the President and CEO of the Consumer Data Industry Association, based in Washington.