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7 Tips for reporting rent to increase your credit score
If you’re a renter with little to no credit history, you may be wondering how to build credit when no one will give you credit. And you’re not the only one wrestling with this question: The Consumer Financial Protection Bureau estimates that nearly 26 million Americans are credit invisible, meaning they have no credit score at all.
The good news is that there are several ways to increase your credit score that don’t fall into that “can’t build credit because can’t get credit” conundrum. And one of them is rent reporting. While it’s typically something you have to advocate for yourself, your state may be thinking ahead. California just passed a first-of-its-kind law, SB1157, requiring property managers of affordable housing apartment complexes with over 15 units to offer rent reporting services to their renters.
So if this is the new wave of the future, it’s a good idea to understand how it works and what to look for before signing up with a rent reporting company.
1. Always check with your landlord first before going directly to a rent reporting agency
Your landlord or property manager may already offer this service as an amenity to the apartment community you are living in. If they don’t already, they may be willing to provide this service for you. It may cost you nothing or at least be considerably cheaper than a rent reporting service.
2. Be prepared to commit to at least one year of rent reporting
When you begin to use a rent reporting system, it’s as if you have opened a new account. If you close the account down (aka stop using their service), it could negatively affect your credit score because closing accounts can cause your score to go down.
So before you commit to one company, look under the hood and kick the tires to make sure they are a good fit for your needs and your budget can afford it.
Another item worth noting is when this ‘account’ is opened up, it is categorized under ‘tradelines’ which is the same category that credit cards fall into. Newly created accounts can initially cause a small drop in your credit score, but this dip should be recovered in a month or two.
3. Be certain that the company you pick, reports to at least two credit bureaus
You’re reporting rent to improve your credit score. The more credit bureaus your payments are being reported to, the better chance of positive change.
Unfortunately, many rent reporting companies only report to one or two bureaus, and they don’t share information. Some, such as Rent Track, do report to all three bureaus.
4. Shop around for the best price
Initial setup fees and monthly rates can vary wildly from company to company, so it’s a good idea to research a few different ones. For instance, Rent Reporters has a setup fee of $94.95, and Rental Kharma’s is $50. We’ve made a quick side-by-side comparison of 10 rent reporting companies for you here.
Ask for a summary of what your total costs will be for the year, including set-up fees, monthly fees, and if there are fees for reporting past rent payments.
5. Get back rent payments reported
Like Rent Reporters, some rent reporting companies can report past rent payments up to four years back. That’s a great way to see a quick jump in your score. Make sure to have information documenting your payments, like bank statements or receipts from your landlord.
6. Ask what scoring models will be used to calculate your credit score
Although it’s not really up to rent reporting agencies what scoring models may be used to calculate your credit score, it’s worth asking to see if they know.
The most common credit-scoring model, FICO 8, does not use rent payment information as part of your credit score. So although you may see the rent payments showing up on your credit report, they’re not necessarily used to calculate your credits score. Read about this more in-depth here.
7. Ask them how rent withholding will be handled
If you live in a state where you have the legal right to withhold rent if your landlord fails to keep your apartment inhabitable, ask if rent withheld is reported as nonpayment or a negative mark.
How rent payment reporting services work
Because you can’t report your rent payments to credit bureaus yourself, you can have either your landlord or a rent reporting agency do it for you. All three major bureaus, Experian, TransUnion, and Equifax, will accept rent payment information from a third-party servicer and include it in your credit report.
If your landlord is reporting the rent payments for you, they may be using a third-party platform. Some rent reporting companies only work with property managers, while others may provide this service for both renters and landlords.
Once you are signed up, the rent reporting company withdraws your rent payment directly from your checking account and pays your landlord, or you continue to make your payments as normal and they work directly with your landlord to track your payments. They then report those payments to whichever credit bureau they work with.
Other questions to ask before you sign-up
- How is your personal data protected?
- Do they provide free access to your credit scores, and if so, which ones?
- Do they include any credit monitoring services or provide you with a monthly credit report?
- How soon will I see my rent payments on my credit report?
- What is your cancellation policy?
- If you split rent with a roommate, how does that work?
- What happens if I make a late payment?
- How do they handle a payment dispute with your landlord?
- What if you break your lease?
How to enroll in a rent reporting service
You can either sign up with one through your property manager or landlord or directly with a third-party service. Be prepared to provide information such as a lease verification, property manager’s name and address, and possibly your bank account information.
There are quite a few rent reporting services to choose from:
- Rental Kharma
- Rent Reporters
This is by no means an exhaustive list. Check out How rent impacts your credit for more as well as a brief summary of their services.
How much can I expect to see my credit score increase?
Credit scores increase by an average of 29%, according to Experian. Generally speaking, people with very low credit scores or no credit score benefit from rent reporting the most because they are starting from the very bottom.
If your credit score is 630 and above, you may want to consider other options for improving your credit score before trying rent reporting. There are some ways to build your credit that won’t cost you any money, just a little elbow grease, and good budgeting. Read more here about other ways to build your credit score.
(One additional benefit of rent reporting is having a well-documented payment history for property managers to see when applying for new apartments. So, worth considering that as well.)
Can I use a rent reporting service if I don’t have a bank account?
Yes, if the company is working directly with your landlord you can. They won’t need a bank account to withdraw payments so how you pay your landlord doesn’t matter.
Our two cents
With the passing of California’s Senate Bill 1157 requiring property managers to offer rent reporting services, it’s possible we may begin to see similar legislation passed across the country. (California often sets a trend.)
However, there are some big holes in how effective rent reporting is in helping improve your credit score. As long as big financial institutions continue to rely on the FICO 8 score, which doesn’t even accept rent payments as a part of your credit score calculation, rent reporting may not be as widely impactful across all credit score ranges as it could be.
Still, rent reporting has been shown to positively impact people whose scores are non-existent or very bad. If you’re in the fair to mid-range, you may want to consider alternative methods to raising their credit score before resorting to paying companies to report their rent for them.
If you decide that rent reporting is the right move for you, choose a company that reports to at least two credit bureaus to maximize your chances of increasing your score, and don’t rely solely on rent reporting to solve your credit woes. There are a ton of things you can do to fix or build your credit that are free (and we really like things that are free).
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