What a Growing Number of Renters Are Doing to Get Closer to Homeownership

While mortgage payments can boost credit scores for homeowners, renters have long been unable to use housing costs to raise their own scores. But recent Federal Housing Finance Agency (FHFA) changes now allow credit bureaus to count rental payments as part of a person’s credit report.

Studies show this helps renters build their credit scores, improving their ability to become homeowners. And knowing that payments will be reported to credit monitoring bureaus may incentivize renters to make payments on time.

How Rent Reporting Can Help You Buy a Home

Your credit score plays a big role in buying a home. A higher score improves your chances of getting approved for a mortgage and helps you lock in lower interest rates. The most significant factor in determining your score is your payment history, so homeowners get a boost because their regular loan and mortgage payments appear on their reports.

Since rental payments typically aren’t included in payment history, most renters miss out on credit building. Many tenants have thin credit files, which can make it challenging to qualify for credit products.

However, changes to credit scoring models show significant improvement when rental payments are reported. A recent study from TransUnion showed 79% of renters who reported payments saw a credit score increase. Generation Z and millennial renters saw even bigger credit score gains.

Although it may take time, the FHFA has directed Fannie Mae and Freddie Mac to accept VantageScore 4.0, a credit score model that includes rent payment history. The mortgage industry has responded that it needs more clarity over the new score’s rules before implementing widespread changes.

How to Use Rent Reporting to Boost Your Credit

If you think your credit score would benefit from rent reporting and improve your chances of securing a mortgage, here’s what you need to do.

1. Find out if your property manager or landlord reports rent payments. Contact your landlord or property manager to determine if they already participate in rent reporting. If so, they can explain how you can opt in. If they don’t, you can search for a rent payment program that you can join. These often cost money, so read a program’s terms and conditions to find out about fees, which bureaus it reports to, and how soon you could expect to see an improvement to your score.
2. Track your credit score. Make a point of regularly checking your credit score. Your bank, credit union, or credit card issuer may provide you free access to your credit score, which makes it easy to log in and check how your score is doing. Remember that your credit history is still the most significant factor in determining your credit score, but the age of credit mix and credit utilization also have an impact.
3. Begin shopping for lenders to start the mortgage process. When you start the homebuying process, ensure your credit score is in good shape. After all, a poor credit score could make it harder to be approved for a mortgage, and, if you’re approved, you’ll typically get poor interest rates and pay more for the loan. With a solid credit score, you can request quotes from multiple lenders to see which offers you a loan with the best terms.

The Bottom Line

Renters haven’t always gotten credit for paying on time, but that’s changing. New scoring models, encouraged by the FHFA, mean that rent can now boost credit scores, making it easier to work toward homeownership.