How paying rent can affect your credit
Paying rent can actually have a way of showing up in your credit report. You just need to look in the right place, and with the right reporter.
A lot of people who don’t have much in the way of a credit history do have a history of paying rent on time. If that information showed up on their credit reports, it might help their scores.
You can’t report rent payments yourself. But rent-reporting services can get your credit reports to reflect your rent payments fairly easily, at a cost that ranges from free to more than $100 a year.
But here’s the catch: There are many different credit scores calculated from the information on your credit reports, and most credit card issuers and lenders don’t use the scores that consider rent payments. When you apply for credit, you don’t generally know which score the lender is going to pull when it checks your credit, or which credit bureau’s report it will use.
To use a rent-reporting service effectively, you’ll need to know which credit bureaus it will report your payments to — and which credit scores take those payments into account.
Which credit scores consider rent payments?
Rent payments remain rarely reported. A FICO spokesperson estimated that less than 1% of credit files contain rental entries, or “tradelines.”
All three major credit bureaus — Experian, Equifax and TransUnion — include rent payment information in credit reports if they receive it.
Although rent is reported as a tradeline — much like a mortgage or car loan would be — it’s not treated the same for scoring purposes, says consumer credit expert Barry Paperno, who blogs at Speaking of Credit. “Unless a prospective lender includes that information outside a credit score, it may not help,” he says.
Only a few credit score algorithms consider the information in calculating a score. The most commonly used versions of the FICO score don’t use rental payment information, but FICO 9 and FICO XD do, as does VantageScore.
Some renters use the reporting services to get credit through lenders that are known to use those scores. At least one rental reporting company tells its customers which credit cards to apply for — and all credit scoring formulas include credit card payments.
How does rent reporting compare with other types of credit building?
Other credit-building strategies rely on more traditional tradelines. You can get a secured credit card, for example, or a credit-builder loan. Revolving debt, such as credit cards, and installment loans are considered in virtually every credit score.
“Rent information will help lenders that are prospecting for possibly creditworthy people who have been overlooked,” NerdWallet columnist Liz Weston says. “But most lenders are still focused on attracting people with good traditional credit scores. If you want the best rates and terms, you have to build credit the old-fashioned way — with credit accounts.”
Still, it is possible for you to be approved for a loan without a FICO score — even a loan as large as a mortgage — but you will likely be working with a small lender.
And having rental payment information in your credit report can be useful if you rent again. Landlords prefer tenants who can show a history of paying on time. A study by the nonprofit Credit Builders Alliance showed that rent reporting both increased on-time rent payments and credit scores (Vantage 3.0) for participants.
Which services will report your rent payments to lenders?
There are several ways to get records of your payments in front of lenders. Among them:
PRBC: Payment Reporting Builds Credit is an alternative credit bureau. Its score incorporates rent payments, utility payments and more. The service is free; however, the PRBC score is not widely used.
Rent Reporters: Setup is free, and the service is free for 15 days. After that, if you pay by e-check, there is a processing fee of $3.95, and if you use a credit or debit card, it’s 2.95%. (Note: If you are paying Rent Reporters by credit card, you already have a tradeline on your credit report.) Rent payments may be reported retroactively, and it sends rent payment information to the three major credit bureaus.
Rental Kharma: Initial setup is $40, and then the service is $9.95 per month. During enrollment, you can report payments made in the previous 24 months. It reports to TransUnion.
RentTrack: The service costs $1.95 a month (unless paid by the landlord and offered free to tenants) and reports to all three credit bureaus. A 24-month look back at previous payments may not be available if multiple leases are involved.
ClearNow: This service debits your rent from your checking or savings account. There’s no cost to tenants, and, if you opt in, payments are reported to Experian.
PayYourRent: Variable fees, depending on how rent is paid; in some cases the fees are paid by management. It reports to TransUnion and Experian.
If you’re shopping for a way to have rent reported on your credit report, here are questions you should ask of service providers. Also, check to see if your property manager already works with one.
- What would my total costs be for a year of service, including any setup fees or fees for reporting previous rental history? (Some services can go back as far as 24 months.)
- How do you protect my personal data?
- Which of the major credit bureaus do you report to? (All three is ideal.)
- Do you provide free access to credit scores, and if so, which score(s)?
- How soon should I expect the information to appear on my credit report?
- How can I cancel the service?
- What happens if I have a dispute with my landlord? In some states, renters have a right to withhold payment if the landlord fails to keep the unit repaired and habitable. Critics have expressed concern that consumers might be afraid to exercise tenant rights for fear of being reported late to the credit bureaus.
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