What's the biggest payment you make every month? If you're a renter in the DMV real estate market, it's probably your rent.
But did you know that you can pay your rent on time, every time, for years, and it may never show up in your credit history? It's frustrating, especially if you're hoping to buy a home in Washington, DC, Maryland, or Northern Virginia and are trying to build your credit.
The good news is that’s changing. New options for reporting rent payments could help renters build their credit history and take a step closer to homeownership. Here's what DMV renters need to know and why it could open a door you thought was closed.
It’s the most common hurdle would-be buyers have. As Zillow explains:
“Nearly one-third of mortgage applicants are denied a loan because of insufficient credit history, making it the most common reason for a denial.”
But there’s finally a way in now that how credit gets measured is changing.
The Good News: Credit Is Getting Broader
As Michael Sherman, General Manager and Senior VP at Zillow Rentals, explains:
"Affordability is the headline in housing right now, and access to financing is a very important part of the story. Credit history is a barrier standing in the way of too many potential buyers. Rent reporting is a direct way to address that.”
Here’s what Sherman is talking about. New credit models are emerging that take on-time rent and some utility payments into consideration to help renters get credit for the bills they already pay.
VantageScore is one company with a new credit model that has been approved for use by the Federal Housing Finance Agency (FHFA). And that roll out could have a big impact on renters like you.
A recent study by VantageScore found that nearly 4 million U.S. renters could finally become eligible for a mortgage if their on-time rent payments were counted as part of their credit history. Now, this isn’t a guarantee that it will suddenly count for every would-be buyer, but it does crack open the door.
Here’s the catch though, you still have to walk through it.
Counting Rental Payment History Is Not Automatic
There are more options available to build credit, but you have to be proactive. Your rent won't necessarily count unless you make sure it does. And the sooner you take credit for your payments, the better.
Here's how to get started based on a few tips from Experian, the Consumer Financial Protection Bureau (CFPB), and FICO:
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Ask your landlord or property manager if your rent is being reported. If it's not, opt in.
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If your landlord doesn't offer rent reporting, there are services available. Be sure to check fees and which bureaus they provide your data to.
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Check your credit reports for errors. Mistakes happen and fixing them is one of the quickest ways to strengthen your profile. The CFPB offers step-by-step instructions on how to fix errors on your report.
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Follow basic, important credit rules. Pay your bills on time, keep your card balances low, and don't apply for a bunch of new credit at once.
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Don’t close any accounts - even if you have paid them off and don't use them often.
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Diversify your profile by getting a secured credit card or becoming an authorized user on someone else's account to help you build history beyond rent.
These steps take a little time and effort, but it could be worth it if it starts building up your credit history.
Just remember, not every lender uses the same scoring model and there are more changes on the horizon. So, the sooner you get credit for the work you do, the better.
Even if you're not sure when you might be ready to buy a home, talking to a lender is a good place to start. A professional loan officer will help you make a plan and help you figure out a timeline to get ready to officially apply and buy.
Bottom Line
The path to homeownership is changing, and your rent payments may be more valuable than you realize. Taking steps now to build your credit history could bring you closer to owning a home in the DMV market.
Wondering if you're ready to buy a home? Start with a conversation with a trusted mortgage professional to understand where you stand and what steps you can take next. Then, connect with Mynor & Associates at Keller Williams to explore your options and create a plan for your homeownership journey.
Your next chapter could be closer than you think!
