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Not too long ago, paying rent didn’t have much to do with your credit score. Of course, not paying rent could always (and still can) wreck your credit score. If you were behind enough to have your account sent to a collections agency or go through a judgment process, that information would likely appear on your credit report. But if you did everything right, it never really helped your score at all.
Even as the housing market is recovering from its collapse several years ago, more Americans are renting these days. Millennials, in particular, are less and less likely to own a home. For these younger adults, high rental rates and student loan debt can keep them from building up the down payment — and credit — they need to buy a home. Enter the thriving rental market.
Until recently, though, there was no real way for renters to get recognized for their faithful, on-time payments of this big monthly bill. After all, they weren’t paying off a debt, so that information didn’t get automatically reported to the credit bureaus. You may be sending in a rent check that’s three times the amount of your credit card payment, but it did you no good from a credit report standpoint. Not getting some acknowledgment for paying that important bill on time is frustrating.
Update: You can now increase your credit score with Experian Boost.
This has an impact on millennials, especially, most of whom are reluctant to take on credit card debt. Since they don’t have as many revolving accounts to be faithfully paid each month, they don’t have easy options for building credit. This is also true of those who are renting while recovering from a foreclosure.
Luckily, the credit bureaus and credit scoring companies have heard this frustration and are responding. These companies are realizing that those who can pay rent on time month after month are likely to also handle credit responsibly. Since that’s what a credit score is meant to measure, rental information is now being included in more and more credit scores.
How Your Rental History Gets Reported
When you have a credit card or a car loan, you don’t need to think twice about having your payment history information reported to the credit bureaus. It just happens. Especially if you’re working with a big financial entity that likely reports to each bureau on a monthly basis.
Not so when it comes to rent.
Related: Should You Rent a Home or Buy One?
Well, some landlords are now offering online payment systems that report information to the credit bureaus. Keep in mind, though, that this still isn’t widely used. Instead, you might have to proactively pay your rent through such a service, which will report your payments to the credit bureaus for you. Here are some options:
- RentTrack: This service is one that works with both property managers and tenants. If your landlord participates in the service, you can pay your rent through it, likely for free. If your landlord doesn’t participate, you can share your lease agreement with the system and use it the pay your rent for a fee. Either way, your payments will automatically be reported to all three bureaus. RentTrack also gives you access to your credit score and credit score tracking tools.
- RentReporters: This service will actually back-date your rent payments. It costs $59.95 to have the last two years of rent history added to your TransUnion credit report. After that, you can continue to report your monthly rent payments for $9.95 per month. This service works with just TransUnion.
- eRentPayment: Your landlord will need to use this online payment bureau for you to sign up. But if you can use it, you can choose to have your rent payments reported to all three bureaus for free.
- RentalKharma: This service is similar to RentReporters. You’ll pay $40 for verification, and then $9.95 per month to have your rental payments added to your credit report. Your landlord will need to verify your payments each month. This service only reports to TransUnion.
How Will This Impact Your Score?
The biggest recent development when it comes to credit scores and rent is that more credit scoring models use them! When I originally began looking into this reporting option, in 2013, only the VantageScore was set up to include rental payment information. So, even if your credit report showed rental payments, your FICO score wouldn’t include that information.
Not sure of the difference between your credit report and your credit score? Check out this article.
Now, the FICO Score 9, FICO’s latest scoring version, will count rental history whenever it’s reported into the score. FICO says that the change will be most valuable for renters with an otherwise limited credit history.
VantageScore, which is becoming a more popular credit scoring option with lenders, has reported rental and utility payments for years now. According to VantageScore, adding this history allows 30 to 35 million consumers who would otherwise have no credit history to have a credit score, giving them the ability to borrow.
It’s impossible to say exactly how much reporting rent payments to the credit bureaus will affect your credit score. It all depends on your current credit history. However, there have been some interesting studies on the subject, including one TransUnion study that showed 8 in 10 subprime borrowers saw an increase in their VantageScore after just one month of reporting rent payments.
An Experian study showed that after reporting rent, 100% of tenants who were previously unscorable had a credit score. And almost 3/4 of those studied experienced a credit score increase. Finally, a study from RentTrack found that reporting on-time rent payments for 6 months increase consumers’ VantageScore by an average of 9 points. For those who started with a credit score below 650, the average increase was 29 points!
But There’s a Caveat
If you currently have no credit history or have a very low score, reporting rent may be very helpful for you. The above-cited studies prove that.
However, the problem is that you never know which credit score model a potential lender will use. If your rent payments only impact your VantageScore and FICO 9 Score, you’re out of luck if a lender pulls a FICO 8 score, which is still an available option. You also don’t know which credit bureau’s credit history will be used. If your rent payments are only reported to TransUnion, but your lender pulls a score based on your Experian file, your rent payments won’t make a difference.
Chances are that more and more lenders, particularly those dealing with first-time home buyers and those without much credit history, will use these scores. But there’s no guarantee. So you may be out of luck with certain lenders who don’t pull the right credit score.
Are These Services Right for You?
Paying a few bucks a month to have your rent payments reported to the credit bureaus may be worth your while, but it may also be a waste of your money. If you’ve got a good credit history, or even just a couple of loans and a credit card, adding rent payments may not make a big difference. Here are the two situations in which you might want to pay for these services:
Your score is below 650
The studies on the impact of rent payments on credit scores found the biggest changes for renters with subprime credit scores. If your current score is below 650, it might be worth your while to pay for a service like this — especially if you’re hoping to take out a major loan in the near future.
You’re currently unscorable
Having no credit history is something of a catch-22. You need to have credit to get credit. So, if you don’t have enough credit history to have even a low score, adding rent payments could make the difference. Even if your starting score isn’t very high, it could be enough of a foundation to work on building a great credit score over time.
Other Options for Building Credit
If you’re in one of the above situations, you might decide to use one of the services listed here to have rent payments added to your credit report. But you could also use other options for building your credit, including:
- Become an authorized user on someone else’s credit card. If that person has — and maintains — excellent credit, that will carry over to your credit report.
- Get a cosigner on a small auto or personal loan. Your cosigner will need to trust you to make on-time payments, but this can be the easiest option for opening a loan to start building your credit history.
- Try a secured credit card, which requires a deposit and is, therefore, easier to get when you have low credit or no credit.
For more tips on how to start building credit from scratch, check out this podcast.
The bottom line is that as most and more people rent instead of buying, reporting rent payments to credit bureaus will probably become easier and more natural. Until then, paid rent-reporting services may be worthwhile if you’re trying to build or re-build your credit score.