For a long time, credit histories included only information about consumer debt. Credit cards, automobile loans, mortgage loans, student loans and personal loans are examples of the types of activity that appeared on credit reports. However, if you’re relatively new to credit and considering moving off-campus, or out of mom and pop’s place, in the months ahead, there may be an opportunity to help cement your good credit activity for the road ahead.
In 2010 a movement began to start including positive rental payment data as part of a consumer’s credit file. Such data includes rent payment histories obtained through a national network of property management companies. The rationale for adding this information is simple: before most people are able to afford to buy a home, rent is their largest monthly expense. If they make that payment on time, there should be a mechanism in place to record that good, consistent behavior.
Paying your rent on time tells lenders how responsible you are about meeting your financial obligations. Not all landlords, however, report rent payments to the credit bureaus. If your landlord doesn’t report your payments, and you want them included in your credit report, there are rent payment services that can assist you. When you have the opportunity to move out on your own for the first time, you can request that your on-time rent payments be reported to the credit bureaus. Then, the next time you need to request additional credit, lenders looking at your credit report can see the consistency of payments you’ve already been making to your landlord.
Rental information is included on your credit report indirectly. If you’re late with rent, break your lease, are evicted, or owe a landlord money for damages, the information can be reported to the credit bureaus.
Many people believe the only way a landlord can report debt on an individual’s credit file is to have a judgment against the former tenant, and that is simply incorrect. A landlord does not need a judgment to report debt to the credit bureaus and can actually sell the debt to a collection agency.
If your leasing company decides to sue you instead of turning your account over to a collection agency, and the court finds in favor of the leasing company, the resulting civil judgment is likely to show up on your credit report.
Your credit history will likely capture any lapses you make in terms of being financially responsible. It can also show the solid payment behaviors you’re already putting to work when you pay your rent each month. When you’re living on your own, your behavior can have a greater impact on your credit – make sure you’re aware of the impact your choices bring.