Building Credit is Essential for Gen Z’s Entry into the Rental Housing Market

The rental housing market in the United States has seen a decline in prices, offering young adults from Generation Z more affordable rental options. According to real estate firm Redfin, the median U.S. asking rent price in December 2021 was $1,964, marking a 0.8% decrease compared to the previous year. This decrease was the third consecutive decline, following a 2.1% drop in November and a 0.3% decrease in October. While this is positive news for Gen Z, experts believe that there is still a long way to go before the real estate market consistently sees significant price decreases. Renting may still be a challenge for many young adults in the future.

Gen Z, which includes individuals born between 1996 and 2012, faced housing challenges during the Covid-19 pandemic. While some older Gen Zers were able to become homeowners, the majority either became renters or continued living with their parents due to financial constraints. A recent report by Intuit Credit Karma found that 31% of adult Gen Zers live at home because they cannot afford to buy or rent their own place. Furthermore, of the Gen Z adults currently renting, 27% stated that they can no longer afford the cost. The high cost of housing continues to be a significant problem for both buyers and renters.

As Gen Z prepares to enter the rental housing market, building credit is a crucial step to take. Landlords often assess prospective tenants’ credit to evaluate their ability to make payments on time. Having a strong credit history can significantly improve the likelihood of having a rental application accepted and receiving favorable rental terms. Therefore, young adults should focus on establishing healthy credit habits.

There are several strategies Gen Z adults can employ to strengthen their credit scores:

1. Utilize Alternative Metrics and Reporting Programs

Traditionally, recurring household bills such as utilities and internet service do not affect credit scores. However, certain programs, such as Experian Boost, StellarFi, and UltraFICO, enable users to build credit based on alternative metrics, such as banking activity and payments for streaming services, electric bills, and mobile phone plans. Some programs also allow rental payments to be reported as a way to build credit. It’s important to note that building credit using these methods still requires time and consistent payment habits.

2. Become an Authorized User on a Credit Card

Another method to build credit is to become an authorized user on someone else’s credit card. This status allows individuals to use the card without being responsible for the balance. This option is particularly useful for parents who want to help their children establish credit. However, it’s crucial to ensure that the account holder maintains a strong credit score. Additionally, the card issuer must report the authorized user’s payment history to the major credit bureaus for it to have a positive impact on their credit.

3. Consider a Secured Credit Card

For young adults starting to build credit, obtaining a secured credit card can be an effective option. Secured credit cards are relatively easier to qualify for because they require a security deposit, which determines the credit limit. By paying a deposit upfront, individuals can establish their own credit limit. It’s advisable to choose a secured credit card with no annual fee, reports payments to all major credit bureaus, and offers a clear path toward an unsecured credit card with the same issuer once a good credit history has been established.

As the rental housing market experiences a decline in prices, Gen Z has an opportunity to find more affordable rental options. However, the high cost of housing continues to pose challenges for young adults. Building credit is essential for Gen Z’s entry into the rental housing market, as it improves their chances of securing rental agreements with favorable terms. By utilizing alternative metrics and reporting programs, becoming authorized users on credit cards, and considering secured credit cards, Gen Z can strengthen their credit scores and increase their prospects in the rental housing market.