Renting may not affect your score as much as you think, but it’s a good way to establish a payment history—especially if you plan to buy a home someday.
Some great information from our friends over at Consumers Credit Union! If you need more information on obtaining a mortgage or home ownership, please call or Message Chris Simpson @ 231-215-7229.
There are two things about renting that could affect your credit. However, whether they have an impact on your credit score depends on how the property owner handles things.
How landlord credit inquiries affect your credit score
The first thing that could affect your credit score happens when you apply to rent an apartment or home. Many landlords run a credit check before they’ll agree to rent to you. If they do a hard inquiry with the credit bureaus, it could affect your credit score.
Experian, one of the three major credit bureaus, says that hard inquiries stay on your credit report for two years and typically only impact your credit for a few months. However, if you have several hard inquiries within a short period—like when you’re apartment hunting—the bureaus recognize that you might be making multiple applications and treat the multiple checks as a single inquiry.
The drop in credit score for a hard inquiry is usually five points or fewer. Additionally, the dip only lasts a couple months as long as the rest of your credit behavior remains positive.
When landlords run a soft inquiry on your credit during the application process, it doesn’t affect your credit score at all.
When payment history affects your credit score
The second way your credit score could be impacted as a renter is if your landlord reports rent payment histories. Not all landlords report data to the credit bureaus but the information they provide could affect your credit score.
When regular payments are made in full and reported to a credit bureau, it can help establish a positive payment history. Whether on-time payments boost credit scores depends on the scoring method used; sometimes it will boost your score and sometimes it won’t. Newer scoring models are moving toward including rent payment history in their credit scores.
Late payments and evictions reported to the credit bureaus will have a negative effect on your credit score. Even if not reported by the landlord, evictions will show on your credit report as unpaid debt as a result of a judgment. An eviction can affect your credit score for seven years.
Transitioning from renter to homeowner
It’s always good to make rent payments on time, and even more important if you’re planning to buy a home someday. A lender making a mortgage approval decision will want to see a record of timely, in-full payments. Even if your landlord doesn’t send data to the credit bureaus, you can request a rental history from your landlord.
When it’s time to buy your own home, get all your home mortgage questions answered by our helpful mortgage loan officers. If you’re a first-time homebuyer, check out our free online Mortgage Toolkit.
Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit;contact us online or call us at 800-991-2221.
Nexes Realty Inc.
880 W. Broadway Ave
Muskegon, MI 49441