Many Americans have been trying to get their credit scores back in order after suffering from numerous financial setbacks in the past few years following the recession. However, they may have been doing themselves even more good than they thought during that time, because of a new consideration now factored into their credit scores.
In the past, the only way to improve credit ratings in general was to manage all accounts responsibly. That included keeping debts as low as possible, as well as making sure all payments were made on time and in full every month, in addition to a few other factors that came with slightly less weight in developing these ratings. Now, however, credit scoring agencies are trying to develop a more complete picture of how a person handles their finances. After all, the only thing a credit score is really designed to do is let lenders — and potentially other interested parties — know exactly how reliable any given borrower might be. As such, some scoring firms now take into account how regularly a person makes their rent payments.
As a consequence, if you're a person who doesn't have a lot of accounts in your name, such as a recent college graduate or someone who previously had a borrowing history but damaged it through missteps that might have been caused through no fault of your own, you might be able to put yourself in a better position to straighten out your score and improve it simply by continuing to pay the costs associated with staying in your apartment or house when you rent.
Why this is so beneficial
One of the biggest reasons that many consumers have had issues obtaining various types of accounts in the past few years is that the recession caused many lenders to increase their credit qualifications — in some cases significantly — which in turn made it difficult for those with damaged or limited borrowing histories to obtain accounts they might otherwise have needed. That, in turn, made it far more difficult for these people to obtain the accounts that might have been necessary to make up the ground they might have lost, or establish a healthy borrowing history for the first time.
As such, if you're just such a person and you're renting at your current residence, the new scoring method could be a major boost to your chances of getting your credit to where you want it to be in relatively short order. The reason for this is relatively simple: The single biggest factor that goes into determining your credit score is your payment history. In fact, on FICO scores, the original credit rating, this one consideration alone makes up a full 35 percent of your rating. However, it's important to note that not all credit scoring systems are the same; some might count rental payments differently than others, and some might only make this data available to certain types of lenders. For this reason, it will be vital to make sure you know which companies your landlord is reporting this kind of information to (if they're doing so at all) so that you'll know exactly how you'll be able to benefit when you handle your rent properly. As long as you're making all your payments, you're going to benefit from the positive steps.
Of course, just paying your rent on time every month isn't the best way to completely build up your credit rating to acceptable levels. It can be a very effective tool for helping you to do so, but it shouldn't be the only one you rely upon. Keeping other healthy borrowing habits in mind when you're trying to establish, or reestablish, your standing is of the utmost importance. Again, keeping your credit card debts as low as possible will likely be vital to making sure your ratings are as good as they possibly can be. Another factor that might cause your credit to drop during the process of rebuilding your score is repeatedly applying for new lines of credit even after being turned down on previous attempts, as the number of times you submit such a document within a period of a few months can take as much as 10 percent out of your total score.
Finally, you should also try to be vigilant about keeping close tabs on your credit reports, and regularly ordering copies of these documents. Credit reports may occasionally contain unfair markings that could have a negative impact on your standing, and as such, if you discover any, you might want to contact a credit repair law firm about the issue. By doing so, you may be able to have them cleared up more quickly than you could have accomplished on your own.