Here's an Unexpected Way to Build Credit One Month at a Time

NEW YORK (MainStreet)—Renters can now build their credit history by simply making their rent payments on time.

Having a healthy credit score may be the most important thing you can do financially since repairing damages can take time.

Your credit score is examined by various lenders when you try to obtain debt from a credit card company or purchase a house or car. Most lenders use the FICO score to assess your credit, the amount of money you can borrow and the amount of interest you will pay.

Having a strong and high FICO score means you can receive the lowest interest rates on loans and obtain higher quality credit cards.

The three credit bureaus - Experian, TransUnion and Equifax - track consumers' credit history and determine a score based on their ability to maintain and pay debt on time. This method has left millions of Americans "credit invisible," because their timely payments for rent, utilities such as gas and electricity, cable and phone are not included in the credit score. However, late payments are counted against them and appear on their credit reports.

Consumers now have another option to build a good credit score so they can obtain a lease for an apartment or house, insurance or even a job.

Experian is the first credit bureau to give consumers the ability to build their credit history by paying their rent on time. Renters can pay their rent through companies such as WilliamPaid, a Chicago-based company which allows people to build credit through paying their rent online for free.

"Experian is committed to its RentBureau business and has consistently made it a priority to make building credit history more accessible than ever and with our collaboration with payment processors like WilliamPaid, we're providing another avenue for consumers to build their credit history," said Emily Christiansen, director of Experian RentBureau. "Experian remains the only national credit bureau to allow renters to build credit histories by paying their rent responsibly, which we feel empowers renters with the ability to build credit histories through on-time rental payments."

In the U.S. it is estimated that there are close to 65 million "credit invisible or "unbanked" consumers in all age groups, said Jeff Golding, CEO of WilliamPaid.

"We want to help people build their credit history without going into debt," he said. "Right now people are penalized for not having debt. We're here to help level the playing field."

By incorporating on-time rental payments into Experian credit reports, Experian provides an opportunity for renters, including thin-file or underbanked consumers who pay their rent responsibly, potentially to become scoreable by certain traditional scoring methods and potentially gain access to mainstream credit, said Christiansen.

As the number of people who rent in the U.S. continues to rise, adding rental payments to credit histories and scores becomes more critical, said Golding. During the next 10 years, 5 to 6 million families will become new renting households, according to the National Association of Realtors. The number of households that are renting have risen to 38 million and that figure is expected to increase to 41 million by 2015, according to the U.S. Census Bureau.

More than 70% of apartment dwellers want their rent and monthly utility payments to count toward their credit history, according to a recent survey by WilliamPaid.

Most renters believe their timely payments are being reported to a credit agency. That is not the case and only late payments are being reported, making it harder to establish credit.

A majority of apartment renters also want their rent and utility payments to be a factor in determining their credit scores, according to the online survey conducted in July. The findings also demonstrate that one-third of survey respondents had been denied lines of credit within the past year.

"Consumers want more control when it comes to building their credit history, considering that rent and utilities make up a majority of their monthly expenses," said Golding. "This survey reaffirms that Americans want credit for making timely payments, not unlike the credit that they receive for paying their credit card bills on time. Good credit carries a lot of weight."

Since there are over 50 million "credit-invisible consumers" nationwide who have no credit history, Congress is considering an amendment to the Fair Credit Reporting Act called "The Credit Access and Inclusion Act." This legislation seeks to allow people to build credit history from their most frequent and important expenses, such as utilities by reporting these payments to credit bureaus.

Nearly half of the survey respondents who have an average monthly rent payment of $1,033 said they plan to remain renters. Only 56% of respondents are renting an apartment currently plan to purchase a home in the future while 43% plan to keep renting.

Since over 100 million people pay rent each month, these consumers should receive credit for their payments, said Golding.

"More than one-third of respondents who are in their late 20s to early 30s have no or poor credit history, but are still spending large amounts of money every month that isn't helping them to build toward a better future," he said. "For the average age of the renters in the survey, that is an alarmingly high rate of rejection for credit. It shouldn't be the status quo that people have to build debt in order to build credit."

--Written by Ellen Chang for MainStreet

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