3 Strategies for Gen Z to Establish Credit and Secure Their Own Rental
As rent prices experience a downward trend and housing inventory rises, the prospect of renting becomes more feasible for many young adults, particularly Generation Z. However, entering the rental market requires more than just desire; it demands financial preparation, particularly a solid credit history.
The Current Rental Market Landscape
Recent data from real estate firm Redfin reveals a decrease in the median U.S. asking rent price, signaling a potentially more affordable rental market. Despite this positive shift, challenges persist, as highlighted by Daryl Fairweather, Redfin's chief economist.
"There’s not a huge incentive for renters to buy right now. Asking rents are stable, and while mortgage rates have dipped in recent months, they haven’t fallen enough to make the financial equation of homebuying feasible for many people," he said.
Gen Z's Housing Dilemma
Today, many Gen Z individuals are grappling with housing insecurity. A substantial portion still resides with their parents due to financial constraints, unable to afford their own homes or rental properties.
Among those who ventured into renting, a considerable percentage now face difficulties in meeting rental expenses, exacerbating the housing affordability crisis for this demographic.
Strategies to Build Credit
Most times, landlords scrutinize prospective tenants' credit profiles to gauge their reliability in meeting rental obligations. Therefore, cultivating a positive credit record significantly enhances one's chances of securing rental accommodations with favorable terms.
1. Leveraging Recurring Payments
Traditionally, recurring household bills such as utilities and internet services do not directly contribute to an individual's credit score. However, innovative programs like Experian Boost, StellarFi, and UltraFICO have revolutionized this landscape by allowing users to build credit based on alternative metrics such as banking activity and payments for essential services.
"It’s not magical [where] you make three utility payments on time and you suddenly have an 800 credit score. That’s not how it works," warned Jacob Channel, a senior economist at LendingTree.
2. Becoming an Authorized User
Another effective strategy for young adults to establish credit is by becoming an authorized user on someone else's credit card account, typically that of a parent or guardian. This approach allows individuals to leverage the primary account holder's credit history, thereby potentially accelerating the process of building their credit.
However, it's imperative to choose the right primary account holder one with a strong credit score and responsible financial habits. Additionally, ensuring that the card issuer reports payment history to major credit bureaus is essential for this strategy to yield positive results.
3. Utilizing Secured Credit Cards
For individuals seeking a more direct route to building credit, secured credit cards offer a practical solution. Secured credit cards require individuals to provide a security deposit, typically equal to their desired credit limit. This deposit serves as collateral and mitigates the risk for the card issuer, making secured credit cards more accessible to individuals with limited or no credit history.
"Practice healthy habits overall with any line of credit that you may have," said Melissa Lambarena, credit card expert at NerdWallet. "Whatever you’re charging to your credit card, you should only charge what you can afford to pay back."