Owning a home is the American Dream, but building the credit necessary to qualify for a mortgage can feel more like a nightmare. The same goes for obtaining a car or other loan, qualifying for competitive interest rates, being approved for a credit card, or even getting hired for a job. For credit newbies or those who are working on repairing a bad credit score, the Catch-22 of Credit can feel like an endless loop designed to keep you from moving forward.
For those that are a part of “Generation Rent,” there is a major contradiction built into the system: you show great financial responsibility and consistency by paying your rent on time each month, but receive no credit benefit for doing so.
Here are four reasons why every renter deserves to have their on-time payments factored into their credit score:
The rising cost of homeownership gets plenty of coverage, but did you know that in at least 10 top American cities (including New Orleans, LA, Cincinnati, OH and Omaha, NE, among others) it’s more expensive to rent than to own? In fact, the average rent price of an unfurnished apartment in the U.S. is $1,478 per month – by far the highest expense for most tenants on a monthly basis. The U.S. average monthly mortgage payment isn’t significantly different: $1,492, including property taxes in most areas.
While there’s not a major out-of-pocket difference in monthly rent vs. mortgage payments, homeowners receive long-term financial benefits that renters do not. This includes building equity, qualifying for tax deductions, and of course, automatic credit score improvement by making consistent monthly payments.
The top question banks and other creditors have when they loan you money is whether or not you’re likely to repay them. That’s the question that led to the development of credit scores in the first place. Today, your history of payments (or non-payments) to creditors is what is analyzed and presented in the form of credit scores, which tells other potential creditors whether or not you’re a reasonable risk. In 2010, Experian led the charge for credit bureaus to take rent payments into consideration for this exact reason: because they clearly demonstrate fiscal reliability and creditworthiness (or a lack thereof).
The idea that it takes having credit to build credit is not just relegated to the U.S.; recently in the U.K. a frustrated tenant who was struggling to get approved for a mortgage started a petition to demand that banks consider mortgage applicants’ rental payments histories to assess their ability to afford the loan. He got over 150,000 signatures — more evidence that the movement to make rent reporting a tenant’s right is gathering momentum worldwide.
Case in point: in New York City – which is overwhelmingly full of renters – the City Comptroller’s office found that credit scores tend to be lower in rent-heavy neighborhoods vs. communities that have more homeowners. This stands in stark contrast to the fact that in order to maintain their apartments, renters have to consistently pay their rent on time, or risk eviction. And if that wasn’t enough, they also found that among a sampling of tenants paying less than $2,000 a month in rent, 76% of those tenants would see their credit scores improve if their rental payments were included.
What’s the good news, despite all this? Right now, each of the three top credit bureaus will actually count your rent payments toward your credit score. All you have to do is sign up to have your rent reported by a certified credit-reporting agency.
At RentTrack, that’s our mission: to make it simple and easy for renters to have their payments reported to all three major credit bureaus. We believe that everyone who faithfully pays their rent month in and month out deserves the same credit-building advantages as someone who pays a mortgage or other loan on time.
And so far, renters who partner with us have seen success — in two months, it’s not uncommon to see a score increase by 29 points just because of reporting rent. Over two years, we’ve even seen scores go up by 132 points. There’s proof that rent reporting has a significant impact on credit — which is why we’re fighting to make it a legal right for tenants.
You can get involved by signing our petition or writing a letter to your elected representatives. But, in the meantime until rent reporting becomes a tenant’s fundamental right, you can take matters into your own hands and start reporting your own rent by signing up for RentTrack.