As financial times get tough, falling behind on rent is becoming a major problem. As of August 2021, 15% of renters got behind on their rent. Missed rent payments may have a serious impact on your financial health. Paying your rent late results in a negative event on your credit report which can lower your credit score. A low credit score limits your ability to get a loan, rent an apartment, and lease a car. Employers may also use a credit score as a method of screening candidates for a job.
It is very important to maintain a good credit score. When your credit score is good, you have the opportunity to finance purchases at a lower interest rate, qualify for better mortgage terms, get a business loan, or finance a new car. You can be confident in your career change, invest in a project, and take greater risk. Good financial health opens many of doors for you.
How rent payments affect credit
There are many factors that are used in calculating your credit score, but the payment history impacts the largest portion. In general, it represents about 35% of your overall credit score. This means that if your landlord reports rent payments, a single late rent payment can lower your credit score significantly even if you have good credit.
While landlords are not required to report rent, the major credit bureaus will use reported rent payments to calculate your credit score. On-time payments will reflect positively on your credit score, but a late rent payment may lower your credit score by as much as 90-110 points. This may take you out of the excellent category and down to the good category, or from good to poor. For this reason, it is recommended that you keep your score as high as possible to give you a buffer in case you lose points on your credit score due to an emergency.
This late payment doesn’t impact your score permanently. You can boost your credit score by ensuring that your future payments are done on time. Unfortunately, a late payment may take up to seven years to disappear from your credit score report. It may take additional strategies to rebuild your credit.
How to Avoid Late Payments
Since the consequences of having late payments can be quite costly, it is important to create a budget to ensure that you have the money to make rent payments on time. Even if you have the money, it can be easy to forget to make the payments on time. The following tips will help you avoid any late payments and late fees associated with them.
- Sign up for autopay – Autopay is a great tool to ensure that your rent is paid on time. Autopay will authorize your credit card issuer to automatically deduct monthly payments from your checking account on a specific date. Setting the autopay date shortly after your pay date will ensure that you have enough money in your account to cover the rent payment.
- Review your spending – Budgeting apps, like Thinkflow, can help you track your cash flow and ensure that you have enough money for rent when it is due. You can categorize your spending and regularly review your purchases to discover if you are overspending in certain areas. It can help you identify unnecessary purchases an eliminate them.
- Find new sources of income – If your current budget isn’t enough to cover your rent payments, you may need to find a secondary source of income. Taking on a side job can lead to more income or even a better career. Even a little extra income
Avoiding missed rent payments will ensure that you aren’t evicted for non-payment, improve your credit payment history, and help you avoid late fees. If you are struggling to make your rent payments, it may be helpful to evaluate your finances and create a financial plan that ensures that you will have the money in your account when you need to pay your rent.
Don’t let a missed rent payment hurt your credit score. If you find yourself short on money for rent, apply for a loan from Jora Credit today.