Building your credit can be tricky at all phases of life, from the early days when you’re just starting to strike out on your own in college through graduation and even as you age – obtaining and maintaining strong credit scores is a lifelong challenge.
The Catch-22 of Credit goes like this: In order to establish credit, which you need to borrow money and qualify for loans, you must demonstrate good financial habits. But without ever having borrowed money or taken loans on your own, it can be difficult to illustrate to potential lenders your solid fiscal practices. This applies not only to credit newbies, but also to those who have a negative history caused by extremely delinquent accounts (e.g. late payments, repossession, debt collections, tax liens, foreclosure, judgments, bankruptcy, etc.) who are stuck in this vicious cycle.
Good credit scores are always important. You need it when you want to buy or lease a car, increase credit card limits for travel, open accounts for entrepreneurial endeavors, get a mortgage, and so on. Solid scores also help determine your interest rate and terms, and can influence automobile and home insurance premiums as well.
While there certainly are ways to establish a credit history when you don’t yet have one or begin to repair a damaged credit history, there is a relatively new way to get off on the right foot by leveraging something that nearly 72% of people ages 18-34 who don’t live at home make on a monthly basis:
So much for the old adage that paying rent is like throwing away money.
Not using your rent payments to establish and improve your credit history, however, is like throwing away a valuable opportunity to positively affect your financial future.
This is where RentTrack comes in; we believe that renters should enjoy the same benefit from renting as mortgage holders do.
So now that you know that rent can help build your credit, be sure to do the following in order to maximize its benefit:
Get your rent properly reported to credit bureaus.
Wondering how to report rent payments to a credit bureau? It’s not possible for you to report your rent payments yourself, which is why you must use a rent-reporting service like RentTrack to make sure you get them included on your credit reports.
Be sure to pay your rent on time.
This is critical; the whole point of reporting your rent is to demonstrate that you are responsible enough to make consistent payments over time. We found that people who reported timely rent payments through our service for two months or more saw their Vantage Scores increase by an average of nine points. This is huge news for how quickly and positively making on-time rent payments can affect your credit history and scores.
Make sure your rent is being reported to the right credit bureaus.
As Nerdwallet notes, the ideal scenario is for your rent to be reported to all three of the biggest credit bureaus. (RentTrack was the first, and is still one of the only online rent payment company in the tri-bureau reporting space.) You never know what scores lenders will be looking at, so having the most important bureaus covered is key.
Leverage your growing credit history by taking traditional credit building actions, too.
There are many facets to credit reporting, so you’ve got to diversify and also use more traditional tactics, like opening a secured credit card account (which has a cash deposit tied to the credit limit) or by taking a credit-building loan. It’s in your best interest to take as many steps possible to create an overall positive credit history.
Using your rent payments to build credit has many benefits, and topping the list is the fact that it helps you break the cycle of the Catch-22 of Credit without taking on debt or doing anything you wouldn’t be doing anyway. Start owning your credit profile today by using rent to help pave the way to a brighter financial future.