Scores are nothing new in most of our lives. Many of our parents put us into sports or other competitive hobbies from a young age. Our formative years and early adulthood are spent striving for (or being told to strive for) high grades and standardized test scores. But finally, we hit a point when we can put the cleats away or pack up the instrument, bury the SAT study books, and take solace in never getting a report card again.
Or do we? Although much of adulthood saves us from the pressures of scoring (save for annual reviews and other performance measures at work), there’s one thing that’s guaranteed to keep us competing: the credit score.
Granted, there are people who refuse to play the credit score game. But for most of us, that’s simply not possible. Whether we know it or not, we’re being graded daily by the credit reporting bureaus – and these grades can make or break our finances.
Love ‘em or hate ‘em, credit scores aren’t going away anytime soon.
Luckily, there are ways to improve them – even while bearing a large debt burden. How? By simply reporting the bills you have to pay each month! Read on to find out how.
How the Credit Score Model Works
One of the most elusive things about credit scoring is understanding how it actually works. Here’s a quick breakdown of how credit scores are commonly calculated:
- Payment History (35%)
- Credit Utilization (30%)
- Length of Credit History (15%)
- Types of Accounts (10%)
- Credit Inquiries (10%)
Note that credit utilization, which is what accounts for your debt burden, is only 30% of your score. Meanwhile, payment history beats it at 35% of your score! In other words, even if you have a long debt payoff road ahead of you, you can improve your credit score quite a bit by making on time payments on all of your reported accounts.
Credit Reporting Bureaus to Add Rent Payments to Credit Scoring Model
Historically, rent has not been taken into consideration on the credit report, which is mostly made up of debt accounts and not monthly recurring bills. What you would normally see on your credit report are the following:
- Credit card debt
- Student loans
- Installment loans
- Tax liens
- Debt in collections
- Unpaid bills such as utility and cell phone bills
Now that the housing market bust has increased the number of renters in America, reporting bureaus are looking for better ways to rate consumer credit behavior. According to a report in Collections&CreditRisk, subprime consumers could see a drastic increase in their credit scores if their rent was reported – and Experian and TransUnion are getting on board to help:
“TransUnion is making an aggressive push to get larger property managers to join its ‘ResidentCredit’ service and start reporting.
The service encourages property managers to report the payment performance of their apartment residents. Through it, property managers will submit data about their residents to TransUnion each month, reporting the amount and timeliness of their last payment, and any balance owed.
…TransUnion will not charge any fees to report rental payment information via ResidentCredit, company officials said. Also, if a property manager who furnishes the data requests it, TransUnion will share the information reported with other national credit reporting companies to be included in their consumer credit files and scores.
Credit bureau Experian includes positive rent payment information in its credit reports. Larger property management companies report directly through Experian’s RentBureau service.”
What’s more, it looks like this method can work! Collections&CreditRisk shares some compelling data to prove it:
“The analysis found that approximately eight in 10 subprime consumers (79.1% of those with a VantageScore 2.0 credit score lower than 641 on a scale from 501 to 990) saw an increase in their score one month into their new apartment lease. Nearly 41% of subprime consumers saw their VantageScore increase by 10 points or more after one month.”
Reporting Your Rent Payments and Other Strategies to Raise Your Credit Score
If you’re currently renting, this could be a huge advantage to your credit score – but only if you seize the opportunity. It’s unlikely that your landlord or property management company will notify you if they report your rent payments to the credit reporting bureaus. So what should you do?
Ask them to! Single property owners might be hesitant to take on the extra work, but you can try to negotiate with them by doing things such as signing a longer lease.
Don’t stop there. Other service providers may also hesitate to report your monthly payments as it requires them to follow FCRA regulations, but it doesn’t hurt to ask. And keep in mind, even accounts that aren’t reported for on time payments will be reported if they’re paid late (or go unpaid).
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Besides making on time monthly payments every month, there are other strategies you can follow to boost your credit score:
Automate debt with biweekly payments. Not only will you decrease your debt faster, but you won’t have to worry about missing a payment and you can benefit from lower daily credit utilization.
Dispute any errors on your credit report. Errors could be damaging your credit report without you even realizing it. Check your report for free at annualcreditreport.com.
Increase your credit limit – but don’t use the credit. This will lower your credit utilization and have an automatic increase on your score.
Most of all, don’t get hung up on the number. We all have more than one credit score – to the tune of 40+ – so there’s no such thing as a perfect credit score. Keep following credit best practices and you’ll be sure to reach a high score. Just like they told us growing up – practice makes perfect!
Image Credit: palomaleca