Building a Good Credit Rating

Good Credit Rating

Establishing and maintaining a good credit rating is an integral part of minimizing financial stress in life.  A good credit score is also key to qualifying for a rewards credit card, financing a car and even obtaining a mortgage. Many young people lament that they haven’t had enough time or opportunity to build a good credit score.  Yet, these same individuals might be missing out on some opportunities to expedite the process.

One example is regular rent payments. Most millennials know that regular and timely payments on credit cards and loans are a major contributor to a good credit score. However, they may not realize that regular and timely rent payments do not automatically appear on credit reports. Regular and timely payments on any financial liability can demonstrate responsible financial behavior and credit scores depend on what’s contained in an individual’s credit report. While the Fair Isaac FICO 8 credit score does not incorporate rental information, the newer versions, FICO 9 and FICO XD do.  In addition, VantageScore, Fair Isaac’s main competitor also uses rental information in its credit score compilation.

Experian and TransUnion (two of the three major credit bureaus) will accept payment information from landlords and both have areas on their websites where landlords can sign up.  Renters can also self-report via third party companies such as RentTrack and Rock the Score, among others.  However, these services may charge an enrollment fee in addition to monthly fees which thrifty people may want to avoid. Some reporting services may even facilitate the addition of past rental information.  Just the same, a landlord’s life goes much smoother when they’re not chasing down past due payments, so many may leap at the opportunity to reward their responsible renters.

Another effective method to improve one’s credit score would be to become an authorized user on someone else’s credit card.  This strategy works best if the other individual has a long history of responsible credit use.  Young people might also consider obtaining a secured credit card which requires an upfront deposit. Improved credit scores will result if small amounts are charged to the secured card each month followed by adequate and timely payments.  Lastly, credit builder loans can be obtained from local credit unions for modest amounts, and responsible, regular loan repayments will contribute positively to the borrower’s credit score.