Too good to be true? A shortcut to good credit (for a fee)
There's a lot to be said about getting your own place. And if that also helps your credit score, that's even better.
Good credit paves the way to lower interest rates on mortgages and auto loans, and can even make it easier to refinance student loans at a better rate.
Yet for graduates with record student loan debt and entry-level jobs or, worse, no jobs at all , getting there can be an uphill battle.
A credit card is a likely place to start. However, many millennials who apply for cards — and they do so often, it turns out — are declined , either because they don't have much of a credit history or because of low credit scores, according to a study from ID Analytics, a San Diego-based consumer risk management firm.
About 63 percent of younger millennials don't have a single credit card , compared with 35 percent of adults over 30, according to a separate report by Bankrate.
Other forms of debt for those just starting out, such as student loans and car payments , will also help establish a credit profile, as long as the payments are made on time.
Now, new rent-reporting services provided by firms such as RentReporters, Rental Kharma and RentTrack are also gaining traction. The companies take your monthly rent payment and put it on your credit report, to help build a positive history of making on-time payments.
Renters who are considered "credit invisible" and "credit unscorable," or those with no or low credit scores who face challenges getting access to credit, make up approximately 30 percent of RentReporters' nearly 10,000 customers, according to CEO John Simpson. (Overall, one in 10 American consumers has no credit history, according to a study by the federal Consumer Financial Protection Bureau.)
"They are a good alternative for someone who does not have credit," said Julie Myhre-Nunes, director of content at comparison site NextAdvisor, of rent reporting services. They do, however, charge a fee and require your landlord to be on board, which isn't always a given, she added.
RentReporters offers an initial report of the previous 24 months of rental payments for $59.95, which the firm says can increase credit scores by about 50 points, on average. The company reported a 290 percent jump in the number of customers enrolled last year alone, thanks largely to referrals, Simpson said.
However, RentReporters currently sends reports only to TransUnion and, in general, not every credit score takes these rental history payments into account. FICO, for example, does not, although Vantage might and that may be enough to get a credit card or refinance a private student loan.
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"Most lenders, particularly mortgage lenders, use older FICO scores," said Liz Weston, author of "Your Credit Score." "If your point is to get a mortgage, then I don't see the benefit."
Rather, to build a credit history, Weston recommends the "old-school" route: A secured credit card , which requires a cash deposit that then serves as the credit line, can be a good fit for those without a proven payment history , she said.
Another less-known option is a credit-builder loan, Weston said. Instead of receiving the loan money upfront, you make payments into an interest-bearing account for the life of the loan. At the end of that time, you get the money with any accrued interest. This has the added benefit of building credit and savings at the same time.
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