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How Paying Rent Can Affect Your Credit

Rent-reporting services may help you establish credit, but there are faster and cheaper ways.
Credit Score, Personal Finance
How Paying Rent Can Affect Your Credit
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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 credit 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.

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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.

You need to know which credit bureaus your payments are reported to — and which scores take those payments into account.

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. But all three major credit bureaus — Experian, Equifax and TransUnion — do include rent payment information in credit reports if they receive it.

Although rent is reported as a “tradeline” on credit reports — much like a mortgage or car loan would be — it’s not treated the same for credit scoring purposes, says consumer credit expert Barry Paperno, who blogs at Speaking of Credit. The most commonly used versions of the FICO score don’t use rental payment information in calculating scores, but FICO 9 and FICO XD do, as does VantageScore.

Some renters use the reporting services to get credit with lenders that are known to use those scores. At least one rental reporting company tells its customers which credit cards to target. If you’re not sure, browse among the best credit cards for bad credit or the best student cards.

Once you have a card, using it lightly and paying on time will build credit because all credit scoring formulas take credit card payments into account.

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 may help lenders that are prospecting for possibly creditworthy people who have been overlooked, experts say. 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.

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 led to more on-time rent payments and higher Vantage 3.0 credit scores 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:

Rent Reporters: There is a one-time enrollment fee of $45.95, which includes up to two years of reported rental payments, then the service is $9.95 per month. It reports to TransUnion.

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 for a fee of $5 per month reported. It reports to TransUnion.

RentTrack: The service costs $2.95 a month (although some landlords pay the fee and offer the service free to tenants). It reports to all three credit bureaus. A look-back of up to 24 months is available on your current lease.

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 on an opt-in basis.

ERentPayment: Tenants may sign up for this rental payment service only if the landlord is registered. There is a $3 transaction fee for processing electronic rent payments; the landlord may split that cost or require that the tenant pay it. Reports to all three credit bureaus. Two years of previous payments may be reported to Equifax and TransUnion, but not Experian.

Note that your landlord may need to verify your rent payments. Some services may not be able to report your payments if your landlord won’t verify.

What questions should you ask a rent-reporting service?

If you’re shopping for a way to have rent reported on your credit report, here are questions you should ask service providers. Also, check to see if your property manager already works with a service.

  • 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)? (Note that you can sign up with NerdWallet for a free Vantage 3.0 score, updated weekly.)
  • 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.

Updated Aug. 25, 2017.

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