Not too long ago, paying rent didn’t have much to do with your credit score. Not paying rent could (and still can) wreck your credit score. If you were behind enough to have your account sent to a collections agency, your past-due rent would likely be reported as negative information to the credit bureaus.
Rental rates in the United States are skyrocketing because of foreclosures, an unstable housing market, and the general hesitance of younger Americans, especially, to buy homes. While renting can be a good option for many, historically it has not been helpful in building a credit score.
For renters who are rebuilding credit after a foreclosure, or those who are renting until they can afford to buy a house, that’s a problem.
For many of us, rent is the biggest check to hit the bank account every month, and not getting some acknowledgement for paying that important bill on time is frustrating.
Luckily, some of the major credit bureaus are beginning to take rent into account on credit scores.
Experian and TransUnion now allow renters to include their positive payment information in their credit histories, according to the Wall Street Journal. But because this is relatively new, there are some caveats. Here’s what you need to know about your rent’s effect on your credit score:
Not All Companies Use It
At the moment, Experian and TransUnion will include rental information in your credit file; Equifax will not.
Also, not all credit score calculations are set up to include rental payments. The VantageScore calculation may incorporate rent into your score, but the more popular FICO calculation will not. This means that rent will affect certain scores based on the information from certain credit files.
Here’s how it works: Each credit reporting bureau keeps a file of credit history information on you. Your credit history is the basic facts of your payments, account inquiries, balances and such. It doesn’t automatically have a numerical score assigned to it.
In order to get a credit score, a credit scoring formula is applied to the raw information in your credit history file. This means that you could get three very different FICO scores – one for each credit bureau – or even three very different VantageScore results. And lenders can choose which score they use.
Most lenders use the FICO score, but VantageScore is starting to be used more often. To keep up, FICO may change its formula to include things like rent and utilities payments.
It’s Not (Usually) Automatic
Experian is working with property managers through its RentBureau system to have rental payment data automatically updated for renters. Even though the company works with landlords across the country, only a fraction of renters have their information automatically reported to RentBureau.
Also, the other information in your credit file may determine whether your rent is weighed in your overall credit score. According to CNN Money (emphasis is ours):
“VantageScore’s new model will also weigh rent and utility payment records, and public records like bankruptcies for people with very limited credit histories. This will allow it to score as many as 30 million people who previously couldn’t get a credit score and potentially help them qualify for more competitive credit rates.”
So even if your landlord does report your rental information to Experian or TransUnion, and even if you do pay your rent on time, you may not see a huge credit score boost. The inclusion of rent in a credit score calculation is mostly meant to benefit those who otherwise wouldn’t have much – or any – information in their credit files.
Of course, as more Americans opt to rent instead of buy, these standards could change.
How to Get Rent Counted in Your Credit Score
Now that you know these caveats, you may still be interested in having your rent reported in your credit history. It’s a good idea if you’re trying to repair bad credit, or if you don’t have much credit history. But how do you get it done? Here are four options:
1. Talk to your landlord. According to Experian, you can ask your landlord or property management company to join the RentBureau program. Your landlord has to sign up with a rental payment service that works with RentBureau, and then you can opt to have your rental history reported to Experian.
2. Use WilliamPaid to pay rent. WilliamPaid is one of the services that Experian, in particular, uses. Your landlord doesn’t have to sign up for you to use it. Basically, you use the service to pay your rent with a credit card, debit card, bank account or cash, which is accepted at certain retail locations. WilliamPaid also has an automatic payment option.
The fees for using various WilliamPaid payment options vary. It’s free to have your bank account electronically debited, but it costs 2.95 percent of your total payment to charge it on your card. You can also use a combination of payment methods for a 2.95 percent fee. Also, you can use the service to split rent payments between roommates, tracking who has paid and who hasn’t.
With WilliamPaid, you can have your rental payments reported to Experian. If you’re responsible with your payments and have them drafted from your bank account, it’s an excellent, free way to include rent on at least one of your credit reports. And if you use a credit card, you get the added benefit of having your credit card payments reported to the credit bureaus by your credit card company.
3. Try Rent Reporters. Rent Reporters is another rent reporting service, but it is not free. To get started, you enroll in the service, and the company verifies your information. Then, you’ll get an online account where you can track what information is being reported to credit bureaus.
You can sign up with Rent Reporters for free, and they’ll verify your information. Then, you pay $9.95 a month to have your rental information reported to the bureaus. For an additional $34.95, Rent Reporters can send up to two years of your rental payment information, as well. This could be a good option if you’ve always paid your rent on time and are trying to boost your credit score.
4. Check out Rental Kharma. Rental Kharma is similar to Rent Reporters. Again, you create an online account, but with this service, you’ll pay a one-time $10 fee for reporting up to two years of rent payments.
Rental Kharma provides information only to TransUnion, but Cullen Canazares, the company’s founder, said via email that Rental Kharma hopes to begin working with Experian soon.
One interesting thing about how this service works is that it makes rent appear as a tradeline on your TransUnion credit report. A tradeline is an account, according to Experian. So, essentially, TransUnion treats your rent payments like a credit card account or another installment type loan.
Are These Services Right for You?
Whether these services are right for you depends on your credit situation and needs. Because rent is meant to be part of the credit scoring process for those with bad credit history or no credit history, these options are best for those on the low end of the credit ladder.
“Through the addition of rental data, one in three consumers falling in the lowest rung of Experian’s VantageScore credit scoring model (receiving a letter grade of an F and scoring between 501 and 600) will move up at least to the next level (with a D grade and a score between 601 and 700).
However, remember that you’re not guaranteed to receive better loan offers, even if your rent is reported to Experian and TransUnion, since you never know which score from which bureau a potential lender will pull.
Still, with services like Rental Kharma, costing $10 (or $20 if you’re married because you’ll have to apply separately), and with potentially free options like WilliamPaid, it doesn’t cost much to get a potential credit score boost. Plus, FICO may make some changes soon that could broaden the impact of having your rental income on your credit report.
Would you ever use one of these services to have your rental payment history reported to a credit bureau?