Tenants Improve Credit Score With On-Time Payments

TENANTS WITH GOOD PAYMENT HISTORY GET CREDIT-SCORE BOOST | MORTGAGE MATCH NEWS

Good news for good tenants: One of the three major credit-rating agencies has begun to include some on-time rental payments in its reports.

The plan, by an arm of the Experian credit-reporting agency, won’t exactly create a whole new day for renters who are trying to build (or re-build) their credit scores in order to qualify for a mortgage or other loans, but it’s a start.

Experian recently began to include rental information garnered from property-management companies nationwide in its credit reports, which are used to formulate credit scores. The firm estimates that eight million tenants, who generally live in larger apartment complexes, will be affected initially by its decision to report on-time rental-payment records from Experian RentBureau, an arm of the company.

Historically speaking, tenants in general haven’t gotten any credit traction from being on time with their rent because the apartment business is so splintered, according to Brannan Johnston, vice president and managing director of Experian RentBureau.

“There are many thousands of property-management companies, none of which have a huge share of the market,” he said. “There’s not an equivalent of a JP Morgan Chase or an Amex that’s going to contribute to the market data” for renters to the credit-reporting bureaus.

Those eight million renters in the Experian RentBureau database represent just a slice of the nation’s 96 million renters, according the National Multi-Housing Council, a trade group for major landlords. But Experian said it hopes to expand its database  because renters are a considerable – and overlooked — demographic phenomenon.

“There’s a growing number of people who are graduating from college and are trying to get a cell phone, rent a car, or get a credit card and are unable to, because all they’ve done is establish a history of paying rent on time, and it’s not going anywhere,” said Johnson.

Experian’s new policy means that lenders can update their underwriting procedures to automatically include rental-payment records. But whether the data reported by Experian will be used on a broad scale to qualify renters for mortgages may take time to decide, according to Joanne Gaskin, a spokesman for FICO, the developer of the formulas that calculate the FICO Score, upon which much lending is based.

“It’s early to say,” said Gaskin. “We’re looking forward to receiving a sample so we can evaluate the predictive value of it and make a consideration for inclusion. Our approach is that we let the data tell the story.”

via mortgagematch.com

For first time buyers, every little bit helps and this is good news for responsible renters looking to purchase their first home.