There’s a new twist in the old argument over whether it’s better to own or rent your home, thanks to a partnership between a start-up payment service and major credit bureau, who will guarantee renters the credit they deserve for being responsible with their rental payments.
RentTrack and TransUnion are turning the traditional equation upside down. One in three Americans are renters who are making over $300 billion in payments every year. Rent is their largest expenditure, but until now, it had little or no impact on their credit history. Very few had a rent credit score to show for their financial diligence.
RentTrack is a new service that lets residents pay their rent online, view their current credit score, and research listings. Users can search for their house, apartment, or condo, then set up a secure payment so their rent is paid automatically. If the property manager isn’t signed up with RentTrack, the resident can invite them to join.
How does rent affect your credit?
When a user makes a rental payment, the information is provided to TransUnion. The renter’s payment history is then reflected in their report as a rent credit score, similar to a mortgage, credit card, or line of credit. This allows consumers who rent to use their payments to establish and build credit, making it easier for them to apply for loans and receive favorable interest rates.
“RentTrack gives renters, especially younger ones, a new level of control over their financial future,” said Matthew Briggs, CEO, at RentTrack. “The bureaus have been collecting consumer data for decades, but rent — one of the largest expenditures — was seldom or never reported. Now that rent is part of the picture for many consumers, it provides a very convenient way for them to start building a credit history.”
Property managers, at the same, can use the service to find creditworthy applicants and provide their residents an incentive for making payments on time by getting credit for them.
“We anticipate that as more landlords and property managers provide rental payment reporting through RentTrack, this type of information will reach a critical mass and it will be commonplace for companies to use rental history to help establish consumers’ creditworthiness,” said Tim Martin, Executive Vice President at TransUnion. “The sooner consumers and property managers start using companies such as RentTrack and begin seeing the benefits, the better it will be for the consumers, the industry and the economy overall.”
There are plenty of other good reasons that favor renting over buying, the first of which certainly seems be a key concern for the millennial generation, who by and large, remain reluctant to buy.
Reasons people remain renters
Job uncertainty. If you are in the early stages of your career, or wouldn’t be surprised at job changes that could take you across town or further, or just can’t rule out the possibility of needing to move in the near future, you’ll want to rent. Buying ties you down.
Income uncertainty. If you expect a pay hike or cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.
Poor credit. Establishing a solid history of making your rent and other payments on time will help you build the sort of credit you’ll need to qualify for a mortgage. A rent credit score can now be an essential element to this.
Flexibility. Renting allows you to explore an area before making the longer-term commitment to homeownership. Unless you are certain about a specific neighborhood, renting allows time for research and discovery.
Maintenance expenses and the work involved in upkeep are included. When a pipe leaks, you don’t head to the store; you head for the telephone and call the landlord.
Other expenses are included. Property taxes, homeowners association fees, and in some cases, the landlord may pay for utilities such as water, sewer, garbage, or even gas and electricity.
Not to ignore the downside: You have little or no control over the amount your rent may increase, all of that housing payment adds to the landlord’s equity — none of it yours, and tax breaks compared to owning are little or none.
Still, homeowners facing the combination of mortgage payments, property taxes, maintenance and fees continue to fall behind on their mortgages — nearly one in 17 homeowners is delinquent, according to HUD which has extended the Making Home Affordable foreclosure prevention assistance campaign through at least December 31, 2016.
Economic and market trends and your decision
It’s true that buying can be a good deal across much of the country. The typical home price is still 30 to 40 percent below 2006 levels, even more if one accounts for inflation. And because of low interest rates and home prices that remain 13 percent below their 2006 peak nationally, according to real estate numbers cruncher Zillow.
From 2004 to 2006, the market favored renting rather than buying across most of the country, even as many Americans mistakenly decided that home prices could never fall. From 2009 to 2011, buying was a great deal in most of the country. Since the start of 2011, prices have risen 25 to 35 percent in the most expensive markets — and even more in the best neighborhoods of those markets.
So, in coastal California, other prime Sunbelt locations, and the Northeastern urban markets, prices are now high enough that the costs of owning a home may outweigh the financial benefits, including the tax break. The most overvalued markets seem to have three things in common. They’ve all experienced strong job growth since the housing meltdown, they’re still enjoying the mortgage benefits of low interest rates like the rest of the country, and have relatively less restrictive policies on construction that boost home building. So, once again “location” is a deciding factor in real estate — at least when it comes to owning versus renting in current markets.
In the end, the most important criteria you can consider in making your decision on this question is personal — your individual career and financial situation, plans for the future, and most importantly, your need to settle down. And that’s perfectly appropriate for what’s likely to be the most important financial decision of a lifetime.