Thinking about buying a house? If you don't currently have a mortgage, there's a new way to build your credit: make your rental payments on time. Starting in January of 2011, Experian began including data on residential rental payments on its credit reports. In the past, only mortgage payments were recorded; thus, paying rent on time did nothing to improve credit ratings.
For many individuals, rent is the most significant monthly expenditure in their budgets. And while negative information (regarding collections and evictions) would show up on credit reports, the positive aspects of keeping up with a demanding monthly rent schedule went unnoticed. So far, Experian has compiled histories from more than 45 property managers across the U.S. which equates to about 8 million renters nationwide.
According to Experian, with the addition of rental figures, one third of consumers falling in the lowest rung of the credit scoring ladder will move up to at least the next level. And not only has the rental data helped consumers improve credit scores, but it has also led Experian to open altogether new consumer files - including students and others without a bank account or credit history.
Be aware that while credit card payments usually are not considered past due until they are 30 days late, there is usually only a five day grace period with rental properties. So, take a step towards establishing an excellent credit score long before attempting to buy your first home. Pay your monthly rent on time, and build your credit rating while you wait.