Until very recently, paying your rent on time didn't help you build or establish credit. The reason: positive rental payment data didn't show up on your credit reports. This month, however, Experian, one of the three major credit-reporting agencies, announced that it is has begun incorporating positive rental payment history into its consumer credit files. Experian gained this residential rental data through its acquisition of RentBureau, a specialty credit bureau which currently has rental payment histories for more than 8 million residents in its database.
"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," said Brannan Johnston, vice president and managing director of Experian RentBureau, in a news release.
Previously, the only way rental payment data would appear on your credit report was if your account was in collections. "Positive rental payments were what was really missing," Johnston said in an interview.
The news is good for those trying to establish or thicken a "thin" credit file -- one with limited data. Rental payments, if reported to RentBureau, would appear as a rental trade, a type of installment account.
Will rent payments affect your credit score?
For now, the data will only appear on Experian credit reports -- if it's being reported in the first place -- and only a few credit scoring models are currently designed to use the data. VantageScore, the credit scoring model that was jointly developed by the three major credit reporting agencies, is one of them.
Affected consumers could see a boost to their VantageScore credit score. "Our research shows that over one in three consumers in the highest risk VantageScore band will improve to at least the next score band with the addition of positive rental data from RentBureau," said Johnston in the news release.
"It had the biggest impact on people who previously had very little data," he said in an interview.
Currently, only positive rental history is being reported. According to Johnston, the company could start adding negative rent data, such as late payments, to credit files sometime in 2012.
The dominant credit score in the industry, the FICO score, doesn't currently consider positive rental payment data in scoring. "We would need to look at the data to see how it affects the FICO score," says Careen Foster, director of scores product management at FICO.
She said the company is waiting on a data sample and would have to evaluate the predictive value of the data before making changes. FICO scores measure the risk of someone becoming seriously delinquent in the next 24 months.
Still, the inclusion of positive rental payment data is a win for millions of consumers -- especially those with a limited credit history. The lucky renters will finally "get credit" for paying their rent on time each month.
Your reaction: Do you think rental payment records belong in credit reports?
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