Many renters are actively working toward building up their credit score to purchase a home. Most say that homeownership is among their top priorities for the future. There are two significant hurdles to becoming a homeowner: having the credit score to get approved for a favorable mortgage and saving up enough money for a down payment.
You will be able to get a better mortgage rate with a good credit score. You should know how rent payments affect your credit score then before you start to save up for a home. This guide will answer common FAQs about credit scores, offer ways to improve your credit score while leasing an apartment, and highlight one easy way that renters specifically can increase their score.
Credit Score FAQs
A credit score is a numerical representation of your creditworthiness, and it tells creditors whether you are a good candidate for a line of credit, like a loan. Credit scores can be hard to understand. Below are some FAQs to address common questions about them.
How Fast Can You Raise Your Credit Score?
Actions like paying down debt or paying off accounts can cause a nearly instant rise in your credit score. You might see a big increase especially fast if you have a low credit score. It all depends on your overall credit history, financial behaviors, and the accounts on your report.
Is 650 a Good Credit Score?
A credit score of 650 is considered fair. Experian data shows that 17% of consumers have a score between 580 and 669. A “good” score is from 670 to 739, “very good” is 740 to 799, and “exceptional” is anything above 800.
How Can I Raise My Credit Score in 30 Days?
It is possible to improve your credit score in just 30 days. Make sure you never make a late payment on debt or utilities, try to increase your credit limits if possible, get a credit card, pay off debt, and reduce your credit utilization. These are a few ways you can turn things around quickly.
How Can I Improve My Credit Score on My Own?
You can improve your credit score in a few steps. First, know where you stand. Obtain copies of your full credit reports from all three bureaus (Experian, TransUnion, and Equifax). Next, dispute incorrect information on your reports by writing letters to the credit reporting agencies. Finally, take stock of your spending and make sure you’re paying your bills on time, paying down debt, and avoid applying for credit while you’re trying to increase your score.
Which Bills Can Help Build My Credit?
Making on-time credit card or loan payments helps you build your credit. Making payments on bills like utilities (electricity, cable), your cell phone, and rent does not actually build credit since they are usually not reported to the credit bureaus. If you fail to make on-time payments of any of these bills, and providers take action to collect their due sum, your credit score can be damaged. It is crucial to pay rent and utilities on time to maintain your credit.
Do Student Loans Impact My Credit?
Yes. Student loans appear on your credit report and impact your score. The report will show the amount of the loan(s), how much you pay of it/them each month, and your payment history. All of these factors contribute to how your score is calculated. If you default on your student loans, the delinquency and the late payment information will stay on your credit report for seven years. Federal student loans will enter delinquent status as soon as you miss a payment and default status if you go nine months without paying. If you miss payments for 90 days, your credit report will reflect this information and your score will start to be impacted.
The answers to these FAQs may give you a better sense of how credit scores work and a brief view of how to improve yours. Renters need to maintain good credit if they want to eventually buy a house or rent in more luxurious living spaces.
10 Ways to Improve Your Credit Score
A good credit score is essential to obtain loans to buy a home, for access to credit cards, and more. Here are some simple ways you can start improving your credit score.
1. Get a Credit Card
You can rapidly increase your score if you use a credit card responsibly. There are several cards on the market for those with poor credit. You might also want to consider a secured credit card. A secured card is good for those who are building credit from scratch or building back after a bad setback. This type of card allows a person to provide a cash security deposit to an issuer, who then gives it back once the person upgrades to a regular credit card and closes the account in good standing. It is essential to pay a card’s balance in full each month, in order to build credit. You avoid paying interest and quickly build your credit score this way.
2. Become an Authorized User on Somebody Else’s Credit Card
You can become an authorized user on a family member or significant other’s credit card rather than opening a new credit card account. Becoming an authorized user will allow you to build a history of on-time payments. You also won’t have to deal with the negative impact of a hard inquiry on your credit card that comes with opening a new account.
3. Keep Old Accounts Open
A big part of your credit score is credit age. Your credit age makes up approximately 15% of your score. If you have credit accounts that have been open for many years, don’t close them even if you never use them. When these accounts are closed, your average credit age goes down, impacting your score.
4. Always Make Payments on Time
This tip applies to credit accounts as well as rent payments. The most significant factor in your credit score is your history of making payments on time. This history accounts for about 35% of your overall score. Late payments will hurt your score and can be incredibly difficult to repair should they happen multiple times. Call your creditor immediately if you accidentally make a payment late. Explain your mistake, make the payment, and they might not report the late payment to the credit bureaus.
5. Avoid Opening Too Many New Accounts
When you open a new credit account, each one has a minor negative impact on your score because it’s considered an inquiry. Racking up a lot of inquiries in a short amount of time will lower your score. Opening new accounts will lower your average credit age, as discussed earlier. Also, every time you apply for credit – whether it’s a credit card, auto loan, or anything else – that lender will check your credit. When a lender checks your credit, it’s called a “hard inquiry.”Each hard inquiry has a minor negative impact on your score, but those negative impacts eventually culminate in a more significant impact. Building up a lot of inquiries in a short amount of time will lower your score.
6. Avoid Using All of Your Available Credit
The second-largest factor that determines your credit score is your credit utilization ratio. This is the ratio of available credit you have to the amount you are using. If you have one credit card with a $3,000 balance and you carry a balance of $1,500 on the card, your credit utilization ratio would be 50%. A good rule of thumb is to keep your utilization under 30%. Doing this shows your credit company that you know how to manage your money, which boosts your score. Using the majority of your credit, on the other hand, tells lenders that you might be in significant financial trouble. Always keep a close eye on your balance.
7. Make More Payments if You Can
Make additional payments on your debt if you can throughout the month. This helps you keep balances down and avoid additional interest and could improve your credit. As mentioned above, your credit utilization is an important factor in your score. If you can keep your utilization low by making small payments leading up toward a payment due date, it will likely benefit your score.
8. Ask for a Credit Limit Increase
It always looks good on your credit report if your credit limit increases and your credit card balance remains the same. This lowers your credit utilization right away. Often all you have to do to raise your credit limit is to contact your credit card company and ask for an increase. Credit card companies will do this automatically, sometimes.
9. Look for Credit Report Mistakes
Sometimes an error on your credit report could be the reason your score went down. As mentioned in the FAQ section, pull a full credit report from the bureaus (Equifax, Experian, and TransUnion) and look through it for any mistakes. Errors include false late payments or old information that shouldn’t be on your report any longer. You will then need to dispute the error with the bureau by writing them a letter to have the error removed.
10. Obtain Multiple Types of Credit
Having multiple lines of credit on your report looks good. Consider getting different kinds of credit, including installment accounts, which would be a loan that you pay back in consistent payments each month like a car loan, and revolving credit, which would be credit cards or home equity lines of credit. Remember that your credit score will increase the longer you have lines of credit open.
Building credit can take time, even if you have great credit-related behavior. Taking any of these actions will help you improve your credit score and desirability to lenders.
Report Your Rent Payments to Credit Bureaus
Many people do not know that their rent payments can be reported on their credit report, but it’s an option that could up your credit score. Most property managers don’t report rent payments to credit bureaus. Rent payments are considered a tradeline on your credit report, however, similar to a mortgage or other loan. You can improve your score and take advantage of better financing opportunities in the future by having a rent-reporting service report on-time rent payments.
How It Works
Ourtenants have the option to enroll in our RentPlus program, which automatically reports on-time rent payments to select credit bureaus. The program verifies rent payments with the landlord and reports them to select credit agencies. It sends reminders via text message when your rent is due so you never miss a deadline.
You can have all of your rent payments reported for just a small fee per month, per person. Additionally, you can have up to 24 months of previous payments reported for another small fee. This program is a fantastic option for those with a brief credit history and few open tradeline accounts. It offers a way to build credit just by making the rent payments you are already making.
Building Credit for Homeownership as a Renter
It’s important to start thinking about building credit for homeownership now when you’re still renting. You will usually need a high score to land a mortgage, so start using these ten steps now to ensure you are on the right track.
One of the most important things to remember is to make sure your property manager is reporting your rent payments to credit bureaus. Otherwise, you’re missing out on valuable credit history that can boost your score. Enrolling in a program like RentPlus makes sense since you have to make your monthly rent payments regardless. It is one of the easiest and most affordable ways to start increasing your credit score. Some of our residents have seen an increase of over 100 points on their scores while living with us.
Contact DC Apartments for more information about the RentPlus program and available apartment home rentals in the D.C. area.
