Friday, February 24, 2012

Credit Scores Reflect Rent Payments

Beginning March 1, some FICO (Fair Isaac Corporation) scores will include rent payment information collected by CoreLogicCredco, a specialty credit reporting agency.

As reported by Carolyn Bigda in The Chicago Tribune, at its inception the new scoring will only be available to mortgage lenders, which can then check credit scores before approving an applicant for a home loan. This service may, in the future, also become available to credit card companies and other lenders.

Experian, one of the three major credit reporting bureaus, has used rental payments in calculating their Vantage credit scores for over a year. Vantage is a fairly new credit scoring system offered by the major credit bureaus. Experian collects records from RentBureau, a specialty agency it acquired in 2010. To date, only positive data has been included; however, Experian plans to include negative information, like unpaid rent, later this year.

The good: your credit score may increase with a history of on-time rent payments. It could help establish credit scores for young people who have no other credit history, including recent college graduates. Joanne Gaskin, director of product management global scoring at FICO, said “’It certainly would help with the length of your credit history, which makes up about 35% of your score.’”

The bad: Rent history alone is not enough for a FICO score, for which you need a minimum of one year of a traditional credit line, such as a credit card, with at least six of months of payment history. In addition, if you pay your rent 30 days or more late, your Vantage score could drop, even if you have a valid reason for withholding the payment. This could prove detrimental in negotiations with a recalcitrant landlord. However, as with any negative record on your credit report, you can always contest a late payment.
The ugly: what happens to the credit score of a parent (or other guarantor) who may co-sign a lease? According to CoreLogic’s Alyson Austin, that person’s score could be negatively impacted if rent is not paid on time.

Currently only large rental management firms, such as RentBureau, are participating in the new program. However, Experian is expected to launch software soon, making it possible for even small landlords to provide reliable information, albeit at the discretion of the landlord.

Yes, it is a fact that when you go through a bankruptcy, foreclosure or short sale on your home, your credit score will be impacted. It is also a fact that, in time, you will be able to reestablish your credit, acquire a credit/debit card, finance the purchase of a car and qualify for a mortgage. It is also a fact that if you owe too much in debt, if you are paying your debts late, or if you are borrowing from one card to pay another, your score can also be negatively affected. When you call Macey Bankruptcy Law, our dedicated bankruptcy attorneys will take the time to explain how your Chapter 7 or Chapter 13 bankruptcy will affect your personal credit score. Call 800-260-1402 or log onto www.maceybankruptcylaw.com to speak with an experienced and knowledgeable bankruptcy attorney.

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