It’s that time of year again when I pull my credit reports and review my credit score. One of my on-going goals has been to improve my credit score so that when the time comes to purchase a house, I can get approved at the lowest possible interest rate. So far, my score has been consistently improving. However, using various methods to check my overall credit health, I came across a grading system a few sites like Credit.com and CreditKarma.com use to explain why my score is what it is.
A credit score is determined by a few factors:
- 35% is based on payment history – I score a B in this category. Just a few late payments a few years ago dinged me in this area.
- 30% is based on credit to debt ratio – I have an A+ here.
- 15% is based on credit age (the older the better) – I have an A+ here as well.
- 10% is based on the types or mix of credit - I scored an F in this category (see my rant below).
- 10% is based on inquiries – I scored an A- here.
All of my categories look pretty good, except the credit mix. I’ve always been an “A” student, so seeing an “F” in one category made me see red. Using Credit.com, each section has a description that explains the possible reasons I received a particular grade in each category. Examining my credit mix, the only reason I could determine I scored an “F” is because I don’t have a mortgage. Here is an explanation from Credit.com in the credit mix category:
I’m sure that the amount of student loan accounts don’t help (and it’s really not 11 – they’ve just been bought, sold, and rebundled a few times). However, the description states, “…consumers who have mortgages are more stable than consumers who do not.” Oh, really?!
I don’t think I can completely agree that homeowners are more credit worthy given the whole housing boom fiasco. During the peak housing boom years, pretty much anyone who applied for a home loan got one – and without their 20% down payment. Now, we’re seeing the repercussions – people are short selling and foreclosing at a higher rate than ever before. I’m pretty sure that these “home owners who secured a mortgage” aren’t more stable than me who has been paying rent on time for years (and years).
Let’s replay this – during the housing boom, a potential home buyer didn’t have to have stellar credit. These less than stellar candidates were granted home loans they really couldn’t afford. Now, many of them are foreclosing and short selling their homes and some are living mortgage free until there homes are sold or the bank kicks them out (Squatter -a person who settles on land or occupies property without title, right, or payment of rent.) Now as a renter, if I were stop paying my rent, I’d be given 30-90 days before I had to leave, not months upon months of mortgage free living. Aren’t I, the renter, the more stable consumer?! Don’t my years of rental payments count for something?! Why is it that rental payments aren’t factored into credit worthiness and therefore counted towards my score?
I’m not saying that people who are in precarious financial situations (such as a job loss or unforeseen medical bills) deserve to be bullied and picked on for foreclosing – sometimes bad things happen to good people. My rant here is that renters who pay their rent on time for years should be considered credit worthy. Somehow rent payments should be factored into a credit score.
What do you think? Should on-time rental payments be counted towards a credit score? Are home owners really more credit worthy than renters?