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All Americans have some interest in making sure that they have a good credit report and a high credit score. Certainly, these factors are vital when applying for a home mortgage, an auto loan, or a new credit card. But in addition, our credit histories are increasingly becoming a factor when setting insurance rates and can also be used for pre-employment screening. Unfortunately, many of the regular bills we pay have not appearing on our credit reports, such as utilities and rent.
But recently, two of the three major consumer credit bureaus, Experian and TransUnion, announced that they would be including rent payments in consumer's credit histories. This should be good news for most renters, as they will need all the help that they can get should they ever apply for a home mortgage.
How this will work
These two consumer credit bureaus will be using data from a company called RentTrack that allows renters to make online payments. Although RentTrack charges $1.95 a month for this service, many landlords gladly pay this fee to improve the chances of getting their rent payment on-time. In addition, property rental managers will be encouraged to report their tenant's payment histories. In fact, TransUnion cites its own statistics that show that about two-thirds of renters saw some increase in their scores after rental data was included, or at least stayed neutral.
In the past, homeowner's had a built in advantage when it came to their credit scores, as their mortgage payments counted towards their credit scores, whereas renters were deprived of that advantage. Now, the playing field is leveling and this should offer renters an easier path towards home ownership.
At the same time, those who rent properties also stand to benefit as tenants will have even more incentive to pay their rent on time, now that they know that their credit may suffer if they don't. The only ones who may suffer are renters who pay late habitually.
What the future holds
There is some indication from Experian that they are working to incorporate other payment data into their credit histories such as utilities and even cable television bills. In the future, we might see a time when nearly all of our regular monthly payments count towards our credit scores, which will offer lenders and service providers a more accurate prediction of our ability to pay other bills on time. This increased level of accuracy will always help those who handle their finances responsibly, but can hurt those who don't.
How this fits in with the latest FICO formula
This news comes on the heels of an announcement from FICO that there will be some changes introduced to their new credit scoring formula, called FICO Score 9. This is the most popular formula that the consumer credit bureaus apply to their credit reports in order to produce a credit score.
FICO Score 9 will minimize the impact of medical debt while not counting debts to collection agencies that have been paid off. Like the inclusion of rental payments to credit histories, it is hoped that these changes to the scoring formula will result in a more accurate reflection of individual's credit worthiness.
In the end, all parties are looking to perfect an imperfect science, by literally giving people credit where credit is due.
*Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.