When you’re looking to borrow money from a bank for a mortgage, one of the biggest factors they look at when making their decision is your credit score. Your credit score not only impacts your chances of getting approved for a mortgage, but also your interest rate.
Sadly, millions of renters across the US report that it’s difficult to build credit while renting. Fortunately, a little resourcefulness, and taking advantage of new technology can help you build credit while renting. Here are five ideas:
1. Add Your Rent To Your Credit Report
Your payment history accounts for 35% of your FICO score, which is the credit score most lenders use. That means paying your bills on-time every month is the easiest way to help your credit score. Even one missed payment can have a significant negative effect on your credit score.
Renters are traditionally at a disadvantage because rent payments aren’t typically reported to the credit bureaus. But, a new platform called Pinata is setting out to change that. The startup tracks a tenant’s payment history and reports it to the three major credit bureaus each month. This is the easiest way for many renters to improve credit scores, especially if they don’t have credit cards, auto loans, or other trade lines on their credit report.
2. Keep Your Credit Card Balances Low
Your credit utilization ratio — the amount you have charged to your credit cards relative to your total credit limit — is another important factor in determining your credit score, accounting for about 30% of the calculation. Your target should be a utilization rate of 30% or lower. Anything higher than that negatively affects your score, and the lower your utilization the better. If you can get it to 10% or lower, that is ideal. But it’s not just your total utilization that matters, as your usage on individual cards also factors into your credit score.
3. Don’t Close Your Oldest Accounts
The average age of your credit history has about a 15% impact on your credit score, so you will want to keep your oldest accounts active whenever you can. Keeping your oldest accounts in use keeps the age of your credit history up, which helps keep your score higher.
4. Don’t Apply For Too Many Loans
When you apply for a loan, the potential lender does a hard inquiry on your credit report, which costs you some points on your score. The hard pull, as it’s known, stays on your credit report for two years, but its impact on your score lessens over time. If you know you’re going to be in the market for a house and will need to apply for a mortgage, try not to do anything that would require a hard pull leading up to your house search.
5. Pay Attention To Your Credit Report
You’re entitled to a free annual credit report from each of the three bureaus, and you should take advantage of that. Checking your credit report on a regular basis will help you notice if there’s anything on there that looks weird or is incorrect. Utilizing the services of a credit reporting company like Pinata can help you keep your report updated and accurate.
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