Homeowners vs Renters

It has been a long debated topic among homeowners and renters: Who will have the better credit rating?

Now it is obvious that a homeowner will establish more credit but how much does the mortgage debt count against them?

Realty Times columnist, Kenneth R. Harney finds the answer to this question in his August 28, 2006 article, “ Homeowners vs. Renters: Who Scores Better?”

“A new study, based on a nationally-representative sample of three million individual credit files, concludes that it's not even close: Homeowners may lug around substantially bigger household debt loads, but their average credit scores are 55 points higher than non-owners.”

The study was conducted by Experian Consumer Direct, a subsidiary of Experian, Inc. and one of the three national credit bureaus.

These scores computed were not the commonly used Fair Isaac (FICO) scores, but rather were Experian's own version that uses similar factors such as “outstanding credit debt balances, historical repayment performances, utilization of available credit, and length and type of credit.” Experian's scoring system has a point range from 330 to 830; higher scores indicate a lower risk of default.

“Homeowners in the study had average credit scores of 713, while renters scored an average 658. Homeowners with second mortgages or equity credit lines -- even higher debt loads than other homeowners -- scored the highest, an average 739.”

This is an interesting statistic considering that the average continual debt of renters, according to the survey, was $4,565, which barely draws comparison to homeowners with one mortgage ($24,565) and is even more drastically different than the average debt of $42,511 for homeowners with second mortgages or additional equity credit lines.

“‘Consumers with mortgages are doing a great job managing their credit and those with second mortgages are doing even better,’ said Ty Taylor, president of Experian Consumer Direct.”

“Homeowners also make more extensive use of their available consumer credit -- credit cards and other personal revolving accounts that come with limits -- than non-owners, according to Taylor. The typical homeowner had a 35 percent utilization ratio on revolving credit trade lines compared with 18.5 percent for renters. Nonetheless, owners had far fewer credit accounts with late payments reported in their files. While 34.7 percent of non-owners had made late payments on at least one account, 22.3 percent of homeowners with one mortgage did, and just 11.1 percent of homeowners with two mortgages.”

An explanation to these results could be that people who own a home are usually in a better financial situation than renters. So, even though home owners will sometimes have hundreds and thousands of dollars in mortgage debt, they usually understand the value of good credit.

A homeowner must have had good credit initially to be accepted for a mortgage, so it is easier to keep up the standard of making timely monthly payments.

A portion of renters are just trying to get by without even thinking about credit and home ownership.

Back to Articles

Back to Articles