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Many people assume rent payments are already part of their credit reports, but that’s almost never the case. The credit-scoring giant FICO says rent is an entry — called a “tradeline” — on a tiny percentage of credit files.
Yet there’s some evidence that these new rent tradelines can be a stepping stone to achieving the kind of credit scores traditionally used to, say, qualify for a car loan or a mortgage.
A year or two of rent payments can create a credit history without the lump sum of cash required for a secured credit card or the additional monthly payment of a credit-builder loan, two common ways to build credit history.
Credit reports are the raw material for credit scores. Calculating rent into your credit scores is an idea that's gaining traction. VantageScore considers it, and so do FICO 9 and FICO 10, newer versions of the FICO score. The trouble is that earlier versions of FICO are in much wider use than the scores that factor in rent.
It’s possible that having rental information in your files could improve your credit profile, particularly if you're still relatively new to credit.
Rental Kharma at a glance
To review Rental Kharma, NerdWallet gathered six data points, reviewed the online application process and pricing information, and compared its services with others that serve the same customers.
Rental Kharma might be a good fit for you if:
You have a limited credit history and want to lengthen it. It will depend on which credit score a potential lender uses to evaluate you.
Rental Kharma may be less valuable if:
You've been using credit responsibly for more than six months. If so, reporting your rent is unlikely to significantly change your score. Unlike rent reporting, credit card payments and credit-builder loan repayments are reflected in all credit scores, when reported to credit bureaus.
How does Rental Kharma work?
Rental Kharma doesn’t change how renters pay their rent each month, but it does require their landlords or property managers to participate. Their participation is crucial since they'll be verifying the rental payments each month. Even people renting from family members can participate, as long as the family member opts in to the service and owns the property. Rental Kharma will also need proof that the renter has been living at the property.
At Rental Kharma, no contract is required and members may cancel by email or by phone with no added fee.
How does rent reporting appear on your credit report?
Once you (and your landlord, property manager or family member) have enrolled in the service, your rent payments will begin to appear on your credit report in seven to 10 business days.
Rent appears as a tradeline on your credit report; it might appear classed as a "rental agreement" or “open” account, depending on which credit bureau supplies the information. In this case, it will likely be called "RK/Residence," where the "RK" stands for Rental Kharma.
If you’ve moved around, leases will appear as multiple tradelines. (Even if you haven’t moved, if you've signed more than one lease, it’s reported as multiple tradelines.) This type of tradeline differs from the “revolving” (credit cards) and “installment” (loans) tradelines traditionally used to calculate credit scores.
What does adding rental history do for your credit score?
Rental Kharma will report all past history at the member's current address. The perk of including past rental payment is simple: This data can lengthen your credit history, which can help build your score.
This rental history can also show that you're a responsible tenant, especially if you consistently paid rent on time.
While on-time payments and credit utilization are more important factors than credit history in calculating your overall score, taking steps to lengthen your credit history can be helpful.
How much does Rental Kharma cost?
There's an enrollment fee of $50, according to the Rental Kharma website, followed by an ongoing monthly cost of $8.95. For a year, that’s $148.45. A roommate or spouse can also get rent reported for an additional $5 per month after a $25 sign-up fee. All rental history at the member's current address is included in the price.
The startup and monthly payments are made via credit card or debit card. Rental Kharma says it has “bank-level security” and uses double encryption on all personal data.
How is Rental Kharma different?
Rent reporting services are becoming more popular, but there are some things that set Rental Kharma apart.
Not a payment platform
Some rent-reporting services actually handle your rent payments on behalf of landlords; that is, you write the check to the service, which deducts its fee, pays the landlord and reports the payment to one or more credit agencies.
But Rental Kharma is not a payment platform. The company itself does not touch your rent money; instead, it relies on landlord reports to verify payment of rent.
Open to a variety of renters
You don’t have to live in a big apartment complex to use Rental Kharma. Even an arrangement as informal as living in your grandparents’ basement can boost your credit score so long as your landlords can verify that you're making (or have made) payments and that your grandparents own the property. If your landlord doesn't cooperate, your Rental Kharma fee will be refunded. It’s also simple to sign up online.
Helps members leverage new credit scores
Rental Kharma helps its users leverage their new credit scores by pointing out which credit card issuers accept the scores that show rental history. Applying for those credit cards and using them responsibly can further build a credit score.
Since credit card accounts are a factor in all credit scores, a Rental Kharma customer would likely need to report rent, then get a credit card or installment loan to have the robust credit file needed for big purchases at attractive interest rates.
The limits of Rental Kharma
Rental Kharma reports to two of the three major credit-reporting bureaus, TransUnion and Equifax. It doesn't currently report to Experian.
Reporting to one or two of the credit bureaus is not uncommon for a rental reporting agency, but it does create limitations. Mainly, only the credit reports from TransUnion or Equifax will be impacted by rent reporting. If a potential lender pulls a credit report from Experian, for example, then the score might be lower due to the absence of rental payment history.
Another downside to rent reporting, more generally, is that not all credit scoring formulas factor in rental payments. In fact, the most commonly used FICO formulas do not factor in rental payments at all, which means you’re affecting only a small number of the credit scoring models a potential creditor might use.
Questions for rent reporting services
Rent reporting services are becoming more popular, so it’s a good idea to do some research and find the right fit for you. Ask these questions of any rental reporting agency you're considering:
What would my total costs be for a year of service, including any setup fees or fees for previous rental history?
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?