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Positive Credit History For Paying Rent
There are services available that will create trade-lines to report certain regular monthly payments that many consumers make that are not normally reported to the bureaus. One such example is a company called Rental Kharma.
For a fee, they will set up an account for a consumer that will begin reporting their monthly rental payments as positive trade-lines to the major credit bureaus. In this way, consumers are rewarded with improved credit profiles. On-time payments over a consistent, long-term basis are still the hallmark of credit score improvement, and Rental Kharma is no different. One advantage of utilizing a rent reporting service is that they are allowed to report positive rental history several years into the past, meaning that if your client used this service they could quickly add two to three years of positive account activity to their credit reports.
Although this service is effective, consumers are advised to make sure they have plenty of room in their budget to support this extra expense. The trade-line is valuable, but if it prevents the consumer from getting out of existing debt then they should hold off until they are ready. One thing that is fairly unique to the rental trade-line companies is that when they add a consumer’s rental history to their credit reports they can add up to two previous years of history. That means that your client would instantly have two to three years of positive credit history reporting on their credit reports, which can be very helpful when applying for a mortgage or other loan.
There are also other similar services available online. Make sure you thoroughly research each of them prior to signing up yourself or your client if you decide they are a good investment for the particular situation you are dealing with.
Benefiting From Secured Credit
One of the strategies that can benefit consumers who are looking to build or to rebuild their credit profiles is to utilize secured loans and credit cards.
Bad credit personal loans are not recommended. They can help to improve a consumer’s credit profile, however the cost of the loan (interest rates and repayment terms) is not usually justified when compared to the improvement to a consumer’s credit profile that it delivers.
There is one kind of personal loan that is highly recommended for consumers, and this is a secured loan. Secured loans can help improve credit profiles in exactly the same way that an unsecured loan does. The only difference is that the consumer deposits cash to qualify for a secured loan or credit card as opposed to qualifying with a satisfactory credit score.
The credit reporting benefits of both secured and unsecured credit are usually equal, but consumers do need to verify that the secured provider they choose reports account activity to all three credit bureaus.
Aside from generating positive credit history that can greatly benefit consumers, secured loans and credit cards promote financial responsibility and stability, and they can have a profound impact on a consumer’s ability to effectively secure and manage credit in the future.
In addition to that, they are also usually an excellent way to begin saving money as many times the required deposit is held in an interest-bearing money market or CD for a fixed period of time, usually 12 months. This promotes an attitude of saving money instead of spending it and then reminds consumers to stick to the plan. Overall a great tool for anyone who is serious about trying to rebuild their credit.
A consumer recently opened a $350 secured credit card in order to rebuild their credit. Secured loans or credit cards are secured with a cash deposit that is made when they open the account. The amount of credit extended is typically the same as the initial deposit, minus fees. For example, if a consumer deposits $500 into a secured credit card account, they will generally receive a credit card with a $500 limit, and a certain amount of fees already charged onto the card.
The $500 deposit will usually earn a small amount of interest and is essentially simply a savings or money market account that consumers cannot withdraw their initial deposit from for a specified period of time, usually 12 months.
Secured credit cards and loans are amazing tools for teaching the discipline required to have perfect credit, and they can have a tremendously positive impact on credit scores.
The following technique can be used to generate double the benefit of having secured credit by opening both a secured credit card and a secured loan while only having to use personal funds to make one initial deposit.
After consumers take the time to send dispute letters and remove negative information from their credit reports, many times they still need to add additional positive account activity onto their credit reports in order to have a great credit score. The catch-22 is that you can’t get credit without having credit. Most credit providers want to see some positive credit history before they will approve consumers for credit, but how is it possible to get positive history if you need positive history to get it?
The answer for many consumers is to add additional trade-lines of secured credit to their credit reports. One is always good, but two is much better. For most consumers it is recommended to do some online research and find companies that offer secured loans and credit cards. Consumers who already have a relationship with a bank will want to start there and continue their research online as there are many different offers available, some with much better terms than others.
Once located, a consumer can open a secured loan for $500, and then take the proceeds of this loan and open a secured credit card with a $500 limit.
This will generate two accounts on the consumer’s credit report:
1. A $500 secured loan
2. A $500 secured credit card
By following this technique, a consumer can add $1,000 of secured positive credit to their credit reports by only having to make a $500 deposit.
Creating two positive accounts on your credit history, particularly when combined with writing effective dispute letters to remove negative information, can have an enormous impact on improving your credit score. As was noted earlier, one trade-line is powerful, but creating two positive trade-lines at the same time can have an even bigger positive effect.
When reviewing options, make sure to inquire before you apply to ensure that the secured credit provider you are using reports to all three credit bureaus. Most consumers simply send them an email and ask.
Consumers should pay special attention to monthly or yearly fees, deposit requirements, and interest rates as each of these will have an effect on the overall cost of the secured credit card.
Building or rebuilding consumer credit is not free, but there also is no reason for it to cost an arm and a leg. It costs more in time than in direct financial expense, but there are small costs such as the costs of obtaining a secured line of credit, loan, or both.
The two links below will lead to additional information related to secured loans and credit cards. The author and/or publisher of this course receives no incentive at all for suggesting these links. They are provided as a starting point for consumers who are unaware of these options to begin to learn about them and their different prices and features.
Becoming An Authorized User
One of the most effective tactics available to consumers to improve their credit profiles is to piggyback off of someone in their household that already has a good credit history. If a spouse has excellent credit, they could add the consumer as an authorized user on certain credit card accounts, and those accounts would then show up on the consumer’s credit profile as if they were theirs, complete with the entire credit history of that particular account.
For example, if the person who added the consumer onto their account as an authorized user had paid their accounts on time for ten years without missing a payment, then it would appear on the consumer’s credit report as if the consumer had as well. It can have a tremendously positive effect on consumer credit scores.
Here’s some of the details of becoming an authorized user:
- The accounts you’re an authorized user on will show up in your credit reports and are treated by the bureaus as if they were your own.
- If the primary account holder uses the card or account excessively and exceeds the optimum utilization rates (amount of used credit/amount of extended credit) for the account, your credit score will be affected negatively.
- If the primary account holder misses a payment, it will look on your credit report as if you had missed a payment, and your score will be affected.
- Different scoring models treat authorized users differently. (VantageScore 3.0 only includes positive authorized user account info, while FICO includes both positive and negative.)
What Effect Does This Have On Consumer Credit Scores?
Will authorized user status help consumers to build credit?
In a word, yes.
It is a very effective tool, and when combined with the other methods of adding positive credit information referenced in this module, it can have a tremendously powerful and positive effect on consumer credit scores.
Module 10 References
1. “Google Search Result: rent reporting service”; https://www.google.com/search?q=rent+reporting+service
2. “Where to Find Secured Personal Loans”; https://www.nerdwallet.com/blog/loans/secured-personal-loans-lenders/
3. “List Of Secured Credit Card Options”;https://www.creditcards.com/secured/
4. “Will authorized user status help you build credit?”; https://www.nerdwallet.com/blog/finance/authorized-user-credit-score/