- Understanding Credit Scores
- Traditional Factors That Affect Credit Scores
- How Rent Payments Can Impact Your Credit Rating
- FAQ
With house prices rising steadily in Australia, more people are choosing to rent instead of owning property. Renting offers flexibility in where and with whom you live, but the initial bond can be a significant upfront cost. A rental bond loan can help ease that pressure, but once you’ve moved in, you might wonder – does renting count toward your credit score?
The short answer is that regular rent payments you make to your property manager or landlord do not directly affect your credit rating. This is because rental payments are not classed as credit, and landlords are not considered credit providers. However, there are ways that you can make your payments count, which we will look at here.
Understanding Credit Scores
Your credit score is a number that tells potential lenders, whether it’s a bank or other non-banking financial institution, your risk level as a borrower. The higher your score, the less risky they consider you to be and the more likely they are to approve your loan or credit application.
Australia has three key credit reporting bodies: Equifax, Experian and Illion. Credit scores start at zero and can go up to 1000, although Equifax provides a maximum score of 1200.
Traditional Factors That Affect Credit Scores
While renting doesn’t directly impact your credit score, there are four key factors that do.
Payment History
Your payment history has the highest impact on your overall credit score. That history spans 24 months and includes payments you make to any utility bills, phone bills, credit cards, existing personal loans, car loans and overdraft accounts under your name.
Paying bills on time will generally help to keep your rating healthy, while missed or late payments can harm your score.
Length of Credit History
Having a longer credit history shows you’ve managed credit responsibly over time, which usually boosts your score and gives lenders confidence. This is typically reflected in a higher credit score.
The Types of Credit Accounts You Have
Having a mix of different types of credit accounts, from secured cash loans to unsecured credit cards, demonstrates your ability to handle different credit responsibilities. This can positively affect your credit rating, but it is not as impactful as other factors.
The Number of Applications You Make
Each credit or loan application you submit through a credit provider will initiate an enquiry on your credit report. Submitting multiple applications in a short time can signal financial stress to lenders and possibly lower your score.
How Rent Payments Can Impact Your Credit Rating
While your rent payments don’t directly affect your credit score, there are circumstances where rent can impact your credit report.
If late or missed rent payments exceeding $150 are overdue by more than 60 days, they may be recorded as a default on your file if a collection agency gets involved. Defaults will stay on your credit report for five years and will lower your credit score.
Bad Rental History and the Tenancy Database
Bad rental history can also see you blacklisted on tenancy databases like TICA and the National Tenancy Database (run by Equifax), which property managers use to screen potential tenants. Being blacklisted may dissuade mortgage lenders from approving your application if they see a bad rental history on your record.
The Benefit Of Building A Positive Payment History
At the other end of the spectrum, some lenders may take a positive payment history into account when assessing your loan application. It can show that you have the discipline to maintain your repayment obligations, especially if you’ve been making payments over an extended period of time.
Take The Smart Path Towards A Strong Financial Future
Although renting doesn’t directly affect your credit score, both good and bad repayment histories can indirectly influence it.
There are several things you can do that will count towards your credit score, and some don’t even require a credit card!
Red Tree Finance offers a range of loans for a variety of purposes. Though we do take your credit score into account when you apply, we do consider each application on its own merits. Get in touch with us to see how we can help you.
Frequently asked questions
Does paying rent help your credit score?
Paying your rent on time won’t directly affect your credit rating. However, late or missed payments may land you with a default on your credit report. This will stay on your record for five years and can negatively impact your score.
What bills boost your credit rating?
Credit cards, existing cash loans, utility bills and your mobile phone account can improve your credit score. Paying these on time can help you establish a positive payment history that may be reflected in your rating.
What is considered a bad credit score?
A below-average or “bad” credit score in Australia varies depending on the credit reporting agency. Experian classifies any score between 0 and 549 as below average, whereas Illion considers a score between 1 and 299 as low. Equifax’s below-average score ranges from 0 to 459.
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The information provided in this blog is of a general nature and is provided without considering your specific objectives, financial situation, or needs. It is intended for informational purposes only and should not be relied upon as financial, investment, or other professional advice.Before making any financial decisions or taking action based on the information presented, you are strongly encouraged to assess its appropriateness in light of your individual circumstances. Red Tree Finance does not intend to provide personalised financial advice, and you should seek independent financial, legal, tax, and other relevant advice tailored to your unique situation.