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Paying Rent on Time Can Boost Credit Scores – Study

Here is another reason why you should pay your rent on time.

A new study conducted by Experian RentBureau, a subset of Experian - global information service company, found that a good rental payment history can impact the renter's credit scores positively; thus, enhancing their chances of qualifying for a mortgage loan.

According to Investopedia, credit score is a number derived from a person's credit history that includes - payment history, amount owned, and length of credit history, new credit and types of credit used. Credit scores range from 300 to 850 and the higher the number, the better the person's score. A person needs to have a credit score of over 600 to qualify for a mortgage.

Experian recently added an "on-time rental payment" feature to its credit score database and used the feature in the study to analyze how timely rental payments could affect credit scores.

It analyzed 20,000 receipts of "housing subsidies on the lease and positive lease payment behavior (as defined by the absence of outstanding balances or write-offs)." The leases started between 1994 and 2013.

Experian notes that earlier, only negative rent payment data was reported to lending agencies. But in this study, negative rent payment data was excluded.

The analysis found that about 75 percent of the people that paid rent on time experienced a score increase of 11 or more points. Twenty one percent witnessed neutral or no-change in credit scores, while only 3 percent saw their credit scores declining.

"The ability for many of these consumers to become scoreable, build a more robust credit file and potentially migrate to a better risk segment simply by paying their rent on time each month is powerful and represents an opportunity for positive change that should not be overlooked," the study states.

"Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process," Genevieve Juillard, president of Experian Consumer Information Services explained, according to Realtor Mag.

"This excluded many Americans from the opportunity to attain credit due to a limited or no credit history. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home," Juillard added.

The study comes at a time when more Americans are choosing to rent than to buy. As the economy rebounds slowly, many potential buyers are holding back and waiting for the right time to buy a property.

Read more on this week's mortgage rates here.

This study underscores the importance of paying rent on time and while you wait out the decision to buy, you might as well build on your credit file.


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