Photo Credit: Your Pal Dave
You’ve been paying your cable/internet bill on-time and think that this affects your credit in a good way. Think again. Many American consumers do not know what is or is not reported to the national credit bureaus. A recent TransUnion survey shows that 48 percent of respondents assumed that their rental-payments are reported, while only 29 percent thought mortgage payments were reported. Many landlords do not report rental-payments. Fifty three percent of respondents assumed cable/internet, 52 percent thought cell phone bills and 54 percent thought utilities were regularly reported to the credit bureaus.
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Credit reporting bureaus typically collect borrowers’ student loan, auto loan payment, credit card and mortgage data; mortgage lenders may start considering rental payment history as part of the credit score.
Ken Chaplin, Senior Vice President of TransUnion Interactive said, “Most consumers report paying rent on-time, but many don’t realize that until now these payments are not boosting their credit histories. Renters should be aware that property managers are starting to report payments to credit bureaus and they should be consistently monitoring what is being registered on their individual report.”
Verified rental-payment data has been incorporated into Experian and TransUnion credit files where they are calculated into consumers’ scores when applying for a mortgage. Alternative credit data company, ECredable, will also verify rental-payments in addition to other payments which are not reported to the big credit bureaus. A credit report and score is created based on these records. When applying for a mortgage, you may request that your ECredable data is considered as part of your application. While FHA, Fannie Mae, Freddie Mac, Credit Unions and other financial institutions all recognize the importance of considering this information as part of the loan qualification process; all creditors are required by law to consider alternative credit information when it’s presented to them.
“Expanding the share of property managers who report rental payments will produce more accurate information that truly reflects how consistently consumers meet their financial obligations,” said Chaplin. “It will benefit renters who want to help their credit scores and landlords who want to attract renters who pay rent on-time.”
The importance of including rental-payment history is further underlined by an analysis published by Experian. The analysis covered nearly 20,000 people in government-subsidized housing who pay their monthly rent on time. The survey found that before considering rental-payment history, 11 percent had no credit file. Once the rental history was included, 59 percent had prime credit scores, 38 percent had non-prime scores and 3 percent were considered sub-prime.
Including rental-payments and other non-reported payments in more consumers’ credit files is a big deal. In a time when record numbers of first-time home-buyers are not showing up to buy, this is mostly because their credit scores and reports do not reflect a complete credit picture. Creditors not reporting positive payments affect consumers with higher loan interest rates and the broader economy.
Resources:
PEMCO Realty. Easier for Renters to Transition to Homeownership
HousingWire. Most Americans are wrong about their credit score