Credello: New Data Finds Paying Rent Helps Credit Score

NEW YORK, April 18, 2023 (Newswire.com) - Credello: Thanks to changes made by the top 3 credit bureaus - Experian, Equifax, and TransUnion - rent payments are now becoming a factor in determining your credit score. But how much is it helping, and what do you need to know?

Credit scores are improving thanks to rent payment reporting

Data from Freddie Mac and Esusu Financial found that the average credit score increased by 46 points once rental histories were included. In addition, over 27,000 individuals now had a score established, something that was difficult for minorities or those in poverty to establish. 

The addition of rent payment histories in credit reports comes as banks and lenders are seeing holes in applications for candidates who want to borrow money that traditional FICO scores weren't addressing. As the lack of affordable housing markets and drastic economic fluctuations cause more borrowers, typically in the millennial and Gen Z age groups, to have less of a borrowing history, lenders needed to find another way.

The main credit reporting bureaus noted this and implemented changes that consider the world these younger consumers are working in and adjusted their scoring models accordingly.

In addition to rental histories, some scoring models now also include:

• Buy Now, Pay Later (BNPL) payment histories
• Removal of outstanding medical debt up to $500
• More emphasis on "trending data" instead of financial "snapshots."

Frequently asked questions when getting a new credit score

If you're one of the 27,000 people getting their first credit score, you may have questions about how this works. Here are a few critical answers to popular questions about how credit reports work.

• Does changing your address affect your credit? No, not directly. However, if you don't update your address with lenders, you might miss critical changes to payment schedules, interest rate changes, etc. Missing those could affect your credit balances or payment deadlines, affecting your credit score.
• How can I boost my credit score quickly? The two most critical factors of a credit score are the number of on-time payments you've made and how high the balances are on your credit cards (known as "credit utilization"). The easiest way to boost your score quickly is to keep making every payment on or before the deadline and not keep a balance on your credit cards. If you must carry a balance over to the next month, try to use no more than 20% of your total available credit.
• Do I need to carry a balance to have a good credit score? No. In fact, having no balance on a card is perfectly fine as it shows you're responsible with credit cards. However, your creditor will want you to have an active account, so use your card occasionally instead of cash. Just remember to pay it off before interest accrues.
• I heard applying for too many credit cards will hurt my score. Is this true? Sort of. The number of inquiries you have on your report accounts for 10% of your score, and the more you have, the less likely lenders will approve your application (as, to them, it looks like you're desperate for cash quickly). However, if you apply for a credit card and get approved, the new card increases your total available credit, which accounts for 30% of your score, more than canceling out the 10% affected by a new inquiry.

The bottom line

Now that credit bureaus are expanding their scoring models to include rent payments and other trending factors, it's crucial that you stay up-to-date on your credit report. Checking for accuracy and updating any incorrect information can help improve your credit score and give you the opportunity for a better financial foundation. 

About Credello

Credello is a financial tech company offering a personal finance tool that simplifies financial decisions through personalized, on-demand recommendations — so users can borrow, save, or invest with confidence. Credello believes that finding the right financial product should be as easy and interactive as online shopping, and we are on a mission to make that possible. For more information, please visit https://www.credello.com. 

Source: Credello