Consumers who struggle to build a solid credit profile may soon get a boost by simply paying their monthly rent on time.
One of the country's three major credit reporting agencies is now incorporating positive rental payment data into its scoring methodology. Experian will track the information through its RentBureau division, a specialty credit bureau that gathers payment data from a network of property managers covering more than 8 million renters nationwide.
Until now, only negative rental information would appear on a consumer's credit report, typically after a landlord sent the account to a collection agency. But the Experian announcement means millions of consumers can build and strengthen their credit by staying current with their rent.
"Given that one-third of the U.S. population rents, we felt it was imperative to reflect the true creditworthiness of those individuals who responsibly pay their rent," Brannan Johnston, vice president and managing director at Experian RentBureau, said in a news release. "We are thrilled to be industry leaders in this initiative, and look forward to providing this credit-building avenue to residents."
Renters should take heed, though, as this will soon become a two-way street. Experian plans to report only positive data in 2011. But negative rent information, i.e., late payments, are likely to become part of the mix in 2012.
That means renters could actually damage their credit score by getting behind on their rent.
At this point, Experian is the only credit bureau to include rental information -- and, again, that's only for renters whose landlords and property managers participate in the RentBureau reporting system.
But this first foray could certainly whet the appetites of lenders and underwriters nationwide and spur serious demand across the board. Experts at FICO, the predominant credit scoring system for the lending industry, have said their experts will evaluate the Experian rental data to determine whether it should factor into their scoring model.
The inclusion of rental data could ultimately provide a jolt to the home lending industry. In the short term, it is likely to help thousands of responsible, underbanked consumers gain access to credit they richly deserve.
It's also important to remember that consumers of all stripes can take simple, concrete steps to improve their credit score. Diligence and commitment are essential.
Follow Chris Birk on Twitter: www.twitter.com/cjbirk
Oh and stop telling yourself that you only live once. And forget the neighbor with the nice car. He's a fraud who is in debt up to his eyeballs. Cheap is chic!!