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First-time home buyers can benefit from having their rent reported

The more data mortgage lenders can see that allows them to make a decision on an application, the more people they can responsibly qualify for loans. Rental data is important, but so are utility bills, cellphone payments and other recurring monthly payments. (Rich Pedroncelli/AP)

If you’re beginning to get spring fever and life circumstances are pushing you to move from renting to buying a home, now is the time to size up your financial health. In an uber-competitive market, being prepared can make or break your chances of getting the right house.

Renters are often surprised to learn that most rent payments, which are probably their household’s largest monthly expense, do not appear on credit reports. This means renters do not get credit for paying their rent on time on the most important financial record that lenders use to assess creditworthiness.

The lack of visibility into payments is also a big problem for lenders, which want to get as complete a financial picture as possible when they assess whether someone is likely to repay the money borrowed to buy a home.

Complicating this is the fact that rent can show up on a credit report if you don’t pay it. That’s because unpaid rent might be referred to a collections agency, which reports it to the credit bureaus. So, consumers don’t get the credit they deserve for paying on time but could be dinged when they don’t.

More Creighton: How a low credit score can be costly when buying a home

Why do so few on-time rent payments appear on credit reports?

Fundamentally, it’s because we have a very diffused rental market. A lot of rental housing is provided by small landlords renting a few properties. But there are larger landlords and property management companies that have the resources to report to the credit bureaus. They can manage the accuracy requirements that come along with reporting.

More and more rental companies are providing payment data to the credit bureaus, but we still have a long way to go.

Mortgage lenders want to make sure that you will meet your monthly obligation before deciding to give you a large enough loan to buy a home. The more data they can see that allows them to make that decision, the more people they can responsibly qualify for loans. Rental data is important, but so are utility bills, cellphone payments and other recurring monthly payments.

How can you make sure you get credit for paying rent?

To allow for a more complete picture of their spending history, renters can give permission to lenders to see their rental payment history.

For landlords or property management companies that do not report rental payments to consumer reporting agencies, tenants may be able to “self-report” their rental payments using one of several services that are available online. For example, Equifax and TransUnion also both partner with several services that enable your rental payments to be reported and have that information added to your credit report.

Research from 2020 released by the Department of Housing and Urban Development (HUD) and the Policy and Economic Research Council (PERC) emphasized the potential impact of expanded rent reporting. The study showed that when public housing authorities report positive and negative rental payment histories, up to 61 percent of tenants’ credit scores increased.

What about other on-time payments?

Sixty-three million American adults are either unbanked or underbanked and rely on alternative, higher-cost financial products, according to the Federal Reserve. The nationwide credit bureaus are working to help lenders more accurately assess these consumers’ creditworthiness. By expanding what credit reports capture from rent and utility payments, and even payments to telecom and streaming services, the credit bureaus are helping millions more consumers access fair and affordable credit.

More Creighton: Four things first-time home buyers should know about their credit

For example, Experian Boost is a free feature that allows consumers to add positive payments for services such as utilities, telecoms and even video streaming services, directly into their Experian credit file for an opportunity to instantly increase their credit score. And Equifax offers a Payment Insights solution that empowers consumers to share utility and telecom payment history with banks or lenders when applying for loans and other services.

Check your credit report

To keep tabs on what’s in your credit report, you can access it free at any time at annualcreditreport.com. The three national credit bureaus recently announced the extension of free weekly credit reports to consumers through the end of 2022. This will continue to help consumers manage their financial health during the ongoing hardship and economic uncertainty caused by covid-19 and develop better habits around monitoring their credit in the long term.

The types of data that shape your credit history are changing rapidly. Getting credit for as many of your positive payment histories as possible can speed up how soon you walk through the door to a home of your own.

Francis Creighton is the president and CEO of the Consumer Data Industry Association, based in Washington.

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