By Polyana da Costa for Bankrate.com
Renters who want to become homeowners may improve their chances of getting a mortgage when their rent payments are reported to the credit bureaus, shows a recent study.
That's especially the case for renters with lower credit scores. About 8 in 10 consumers with subprime credit saw their credit scores increase after one month into a new apartment lease when their payments were reported, according to an analysis by TransUnion.
But most renters don't get this benefit
The rental history of most consumers does not get reported to the credit bureaus, says Tim Martin, executive vice president at TransUnion.
"For people who rent and want to establish credit, their single largest monthly budget item is not proving to the bank that they can manage their monthly payments," he says.
TransUnion requests rental information
The credit bureau is trying to encourage large property management companies to submit monthly rent payment data about their residents to TransUnion through a new service called the TransUnion ResidentCredit.
The company also compared credit scores for first-time homebuyers with the scores of renters where the apartment rental payment is not reported. Those who became homeowners since early 2012 experienced a 5.2 percent increase in their credit score over the next year. The average score for renters declined 0.4 percent during the same period.
Derogatory info gets around, though
Renters are clearly hurt financially by not having their rent reported on their credit histories, Martin adds. But what about those who are late on the rent? That information eventually makes its way to the credit bureaus. It doesn’t necessarily come directly from the landlord but once the late payments are reported to a collection agency, the derogatory item appears on your credit history, he explains.
What's your take on this? Do you think renters would benefit from having their payments reported to the bureaus?
This article was originally published on Bankrate.com.