Chris Bridges, Founder and CEO, VITAL Card Inc.
Building credit is one of the most important things that you can do for your long-term financial well-being and stability in the future. One way to start building your credit is to make sure that your consistent purchases and payments are going toward building up your credit. For most people, the largest consistent monthly expense in their budgets is rent. This begs an important question — does paying rent help build your credit?
If you’ve been wondering, you’re not alone. Here is a breakdown answering all the questions you might have about rent and your credit.
What Is Credit?
Before we can get into how rent impacts your credit building, it is important to understand exactly what credit is and how you build it. Credit is often thought of as something that is used to finance large purchases, such as a car or a house. However, credit is also an important factor in other areas of life, such as landlords checking your rental history or employers running a background check.
Simply put, credit is a measure of financial trustworthiness. A good credit score indicates that you are likely to repay your debts on time and in full, while a bad credit score can make it difficult to obtain loans or lines of credit. Everyone has a credit score, and there are things everyone can do to improve their credit. Credit takes time to build, which is why it is important to start right away.
Does Paying Rent Help To Build Your Credit?
If credit is something you have to build to show lenders you are trustworthy, do your rent payments go toward building your credit? No — at least not on their own, but there are ways that you can get your rent payments reflected in your credit report to build credit.
When you pay rent to your landlord it is not reported to credit bureaus in the same way as credit card payments or mortgage payments. If you would like to include your rent payments to be reflected on your credit reports, there are third-party rent reporting services that can do so. These services sometimes come with a fee, but this can be well worth it if it is impacting your credit in a big way.
How Your Credit Score Is Calculated
Credit scores are calculated using a variety of information from your credit report. Payment history is one important factor, accounting for 35% of your score. This means that if you have a history of making late payments, your score can suffer. The next factor is credit utilization, which measures how much of your available credit you’re using. Using less than 30% of your total credit lines is generally recommended, and can help boost your score.
15% of your score is determined by the length of your credit history, so it’s important to keep old lines of credit open even if you’re not using them. 10% is determined by new credit inquiries, so it’s best to avoid opening too many new lines of credit at once. The final 20% is made up of a variety of factors, including the types of credit you have and your payment history on loans.
Things You Can Do To Build Your Credit
Getting a great credit score isn’t just about time, it is also about making the right moves and instilling the right habits. Here are a few things that you can do to keep building your credit in addition to reporting rent payments.
Get a Credit Card and Use It Responsibly
A good credit score is important for many reasons. It can help you get approved for a loan, qualify for lower interest rates, and even rent an apartment. If you’re looking to build your credit, there are a few things you can do.
One of the most effective methods is to get a credit card and use it responsibly. This means making sure you pay your balance in full and on time every month. Using your credit card wisely can show lenders that you’re a responsible borrower and help your credit score.
One great option is the VITAL Card. We reward you for sharing and spending responsibly with first-of-its-kind cashback rewards. Check out VITAL for all the information on this card that you can use to build your credit.
Always Pay Your Bills On Time
One of the best things you can do to build your credit is to make sure you pay your bills on time, every time. Late payments can damage your credit score, making it harder to get approved for loans or credit cards in the future. To avoid this, set up automatic payments for all of your bills so you never have to worry about missing a due date.
You can also set up reminders in your phone or calendar to help you keep track of when each bill is due. By paying your bills on time, you can avoid costly late fees and help your credit score.
Keep Low Credit Card Utilization
Many people don’t realize that one of the key factors in maintaining a good credit score is to keep your credit utilization low. Credit utilization is the percentage of your available credit that you are currently using. For example, if you have a credit card with a $5,000 limit and you currently have a balance of $2,000, then your credit utilization is 40%. Generally, it’s best to keep your credit utilization below 30% in order to maintain a good credit score.
There are a few different ways to lower your credit utilization. One way is to simply pay down your outstanding balances. Another is to request a higher credit limit from your card issuer. If you have a history of making on-time payments and managing your account responsibly, they may be willing to increase your limit.
Finally, you can also open up additional lines of credit to give yourself more available credit and lower your credit utilization. By taking some simple steps, you can help to ensure that you maintain a good credit score.
Check Your Credit Report Regularly
Checking your credit report regularly is another way you can build your credit. Your credit report is a record of your financial history, and it includes information about your payment history, outstanding debts, and credit utilization.
By checking your report regularly, you can catch errors and dispute items early. This gives you the opportunity to correct any inaccuracies before they have a chance to impact your score. Additionally, monitoring your report can help you identify potential identity theft or fraud. If you notice any unusual activity, you can take steps to resolve the issue and protect your credit. Therefore, regular credit report checks are an essential part of maintaining a healthy credit score.
Sign Up for Automatic Payments
One of the best things you can do to build your credit is to sign up for automatic payments. This can show creditors that you’re reliable and capable of making regular payments on time. Additionally, it can help you avoid late fees and penalties, which can also damage your credit score.
If you’re not sure where to start, you can talk to your bank or financial advisor about setting up automatic payments for your bills. Once you’ve started making automatic payments, be sure to monitor your credit report regularly to ensure that your payments are being reported accurately. By following these simple tips, you can improve your credit score and build a strong financial future.
Use a Credit Monitoring Service
A credit monitoring service is a great way to keep tabs on your credit report and score. By regularly checking your credit report, you can catch errors early and correct them before they have a chance to impact your score. Additionally, a credit monitoring service can alert you to changes in your report that may indicate fraud or identity theft.
This way, you can take steps to protect yourself and avoid damage to your credit. While there are some free credit monitoring services available, they often come with limitations. For example, they may only provide updates on a monthly basis, while paid services typically offer more frequent updates.
Additionally, free services may not include all of the features that are available with a paid service. However, whether you choose a free or paid service, a credit monitoring service is an important tool for protecting your credit health.
Rent and Your Credit
Understanding your credit and how to build it is critical for building your financial base. Unfortunately, rent payments will not automatically count towards building credit, but there are ways that you can have your rent reported to boost your score.
There are also plenty of other things that you can and should be doing to build your credit score and keep it high to reap the benefits. One of the most important things is to start taking out lines of credit like a credit card.
VITAL Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.