An FKD Feature exclusive

 

Renting is a popular housing choice, especially for millennials who haven’t saved up quite enough for a down payment on a home. While buying property at a young age was once common, Generation Y seems to be more hesitant to buy, possibly because of high student loan debt.

Take Sarah Billings, a recent graduate and social worker who is unable to save for a down payment on a house due to her expensive monthly student loan payments. Many millennials like Sarah want to own a home in the near future, but are forced to put their investments on hold.

While it may not be as attractive as owning your own home, renting does have some hidden benefits. Millennials who have homeownership aspirations should still consider the effects of renting on their financial futures, especially those currently leasing in today’s high-priced rental market.

Potential Positives of Renting

Opportunities to Grow Your Credit Score

As of 2010, Experian RentBureau offers landlords the option to report their tenants’ payment timeliness. If your landlord opts in, your positive rental history is now factored into your credit score, which is important for lessees planning on financing a home purchase in the near future.

Be careful: the positive effects aren’t reported as regularly as evictions and missed rent payments, so it’s important to be as responsible as you can (more below). Moreover, landlords must be signed up with a rental payment service that works with Experian in order for historical data to be posted. Experian does not charge to report rental payment data, and information is securely transmitted from your landlord’s property management software within 24 hours of activity.

Upstanding tenants benefit when their positive renting behavior has a constructive impact on their credit reports, while landlords can make better-informed decisions on future applicants.

Fewer Financial Repercussions

Homeowners who default on their mortgages may enter foreclosure and lose all equity in their homes. Renters in financial trouble are typically only at risk of losing their security deposits, or monthly rent payments they provided upfront.

While failing to pay rent certainly renders you susceptible to an eviction, you won’t be as financially and legally impacted as you would when facing a foreclosure. As long as your landlord has the last month’s rent upfront, they are less likely to sue or report negative behavior to creditors.

Potential Negatives of Renting

Reduced Credit Score and Damaged Credit Report

Responsible tenants might receive increased merits to their credit scores, but they’re much more likely to be affected when they don’t pay on time. Eviction reporting is common and legal action is often the route landlords take, especially when they are owed more than just the security deposit. After a judge rules in favor of the landlord, Experian, Equifax and Transunion all receive notifications. Then, the eviction is placed on your credit score’s public records section. An eviction is specifically considered a civil court judgment and will remain on your record for seven years – long enough to hurt your chances of financing a car, house or other major purchase in the near future.

Even before a landlord takes legal action against you for defaulting on your rent payments, they may consult a collection agency to obtain missed rent. Collection accounts are also reported in public records filings – and similarly to evictions, remain there for seven years. Not only do these factors hurt your chances to receive low-interest financing, your future as a renter may be compromised, too. Prospective landlords might assume your future tenancy behavior will mimic your past. Tenant screening services alert landlords and property managers of past evictions without credit checks.

Therefore, it’s best to make up any missed payments and mend the relationship, even if your landlord doesn’t contact a collection agency or file legal action against you.

Lack of Equity

One of the most recognized disadvantages of being a renter is a lack of investment. Many homeowners view renting as simply flushing money down the drain because there’s no return on investment for a rental unless you’re in a lease-to-own agreement.

Homeowners, on the other hand, put their 20 percent recommended down payment into a home, and then pay a monthly mortgage comprised of both principal and interest. With today’s astronomical rent prices and low mortgage rates, monthly payments end can up costing the same or less for homeowners as they do for renters.

 

Lessees can ensure their credit score health with timely rent payments, and may even receive positive gains. Reporting tendencies depend on the individual landlord, of course, but it’s best for tenants to err on the side of caution. If you find yourself in financial misfortune and you’re unable to pay rent on time, talk to your landlord before they take legal action and potentially discredit your portfolio.

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Posted 03.19.2015 - 10:30 am EDT
http://www.genfkd.org/the-true-madness-behind-the-month-of-march

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equity homeownership renting Student Loans

Written by

Jennifer Riner

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