Lenders often use your credit report to gauge your borrowing history and your credit score to predict your responsibility as a borrower. When they see a poor credit score, they get nervous. When they see a high one? Theyâ€™re more likely to believe that the borrower will make timely payments. But what if you have a short credit history? Or no credit at all?
Those without a credit score can feel at a disadvantage when applying for things that require a credit check. The New York Times recently posted an article looking at some of the ways renters can use positive behaviors to strengthen their credit. First up? Simply paying your rent on time.
Showcasing responsible payment history â€“ in this case, with rent payments â€“ can help those with little credit to establish some proof of responsibility. You can ask to have your on time payments reported to RentBureau by your rental company or even landlord. RentBureau then reports to Experian and this positive feedback is included on your credit report.
Thereâ€™s a catch, however. Good rental history doesnâ€™t necessarily impact your credit score. Timely rent payments may only end up serving as a positive reflection of your habits. In other words, good rental behavior is proof of responsibility but doesnâ€™t necessarily mean youâ€™ll see your credit score go up. Those who are most likely to see benefits are those who begin with little to no credit and are looking for a way to add a bit of robustness to their credit without using a credit card.
The article does cite another alternative that has a more direct impact on your credit score. Companies and services like William Paid are offering the opportunity for people to pay rent via a credit card rather than simply writing a check each month. This is an appealing option for those looking to build their credit but who would prefer to do so with a recurring expense (such as the monthly rent payment) rather than putting all kinds of expenses on the credit card.
Anyone who wants to partake in the monthly credit exchange for rent should only do so if theyâ€™re able to make full, timely rent payments every month. Miss a payment or need an payment extension? It can have negative financial repercussions. Also, be wary of the fees that are often attached to these services!
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Other ways to build credit with recurring expenses
Beyond reporting your rent payments as a way to boost your credit report, or (carefully) using an actual credit card to pay rent, you might be surprised to learn there are some other â€śeveryday expensesâ€ť that you might use to build or stabilize your credit. If you want to rely on regularly occurring expenses to build your credit, there are some other ways to do that. Here are a few you might want to consider:
Another smart place to show responsible payment history is to attach your name to a home utility bill. Be it water, PG&E, or garbage pickup, responsible repayment in any of these home areas works in a similar way as timely rent payments. Though they wonâ€™t necessarily increase your credit score number unless you use a credit card to pay them off each month, paying for utilities each month is another opportunity to showcase responsible payment habits. Itâ€™s important to note that these payments wonâ€™t actually show up in your credit report â€“ unless theyâ€™re left unpaid and moved to collections!
Some cards are created with the highest rewards earned from gas purchases. If youâ€™re a frequent commuter and can get a hand on a secured credit card, this may be one way to build credit for regularly purchased expenses. Again, this is only a beneficial option for you and your credit if you pay off your balance each month.
There are some cards that give you cash-back for using your card to buy groceries. Since food is often a large part of the budget, you can use this card to buy your weekly groceries but be sure to pay it off before the end of the month!!
Small borrowing habits to watch out for
So this one isnâ€™t necessarily for paying off a monthly expense, but instead an opportunity to showcase the importance of responsible borrowing in any aspect of your life. Did you know that library late fees could bring your credit score down? If theyâ€™re gone unpaid for long enough, these late fees are moved into collections which will have a negative impact on your credit score. Returning items in a timely way is a great opportunity to build a positive habit as well.
Remember, using a credit card is a responsibility! Youâ€™ll only see the returns or benefits if you pay off your balance each month and make sure that you never borrow beyond what you can realistically pay back.
Image credit: blacqbook
This post was published by Claire, Content and Community for Â»Â ReadyForZero.
ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.Download