Does reporting rent really improve your credit? 

Rent reporting sounds like a simple way to build your credit history. But before you ask your landlord to report it or pay a reporting agency to do so for you, there are a few sneaky little details you might want to consider first. 

The biggest “little detail” is that FICO 8 (the most widely used credit score to determine creditworthiness) does not include rent payments in your credit score calculation. So although there are some benefits to rent reporting, the cons may outweigh the pros. Read on for the info you need to make the right decision for you.

The benefits of reporting your rent to credit bureaus

Rent reporting can increase your credit score

If your landlord or a reporting agency is reporting your rent payments, and you make your payments on time, it may increase your credit score by an average of 29 points. That is if it’s actually being used to help calculate your score. See below for more about that.

Build a positive relationship with your landlord

Showing your landlord that you are serious about your financial commitments is a great way to build a positive relationship with them. And, knowing that each payment may count towards your credit score, they may feel that you’re even more likely to pay rent each month on time. Landlords definitely appreciate that. 

Established good rent payment history

Your on-time rent payments will be well-documented for property managers to see when they pull your credit history for a rental application. 

Positive reinforcement

It just feels good to get rewarded for something once in a while rather than being punished with credit dings. And, that sense of accomplishment and forward momentum goes a long way towards feeling empowered and taking control of your financial life, and there ain’t nothin’ wrong with that.

Why rent reporting may not be worth it

Traditional FICO scoring models don’t include rent payments

FICO 8 scoring models include rent payment history on your credit report but that doesn’t necessarily mean that it’s used to help calculate your actual credit score. Confusing, right?

Most FICO models don’t feel that rent payments are predictive of your future risk-worthiness because even if you’re making your payments on time you’re not responsible for a debt burden. 

Newer models such as FICO 9 and FICO 10 have taken a different approach and do include your rent payments in your credit score calculation. The catch here is that many behemoth banking institutions are incredibly slow to adopt anything new, so it may take some time before they use the newer FICO models as part of their decisioning process. 

The drawbacks of rent reporting agencies

Your rent payments can be reported to credit bureaus by either your landlord or by a reporting agency, such as Esusu. If your landlord can’t or won’t report your rent payments for you, you need to have a rent reporting agency do it for you because you cannot report your own payments.

There are many reasons why you need to shop carefully if you’re thinking about using a rent reporting agency. A few things to consider:

• Not all rent reporting agencies report to all three credit bureaus — TransUnion, and Experian, Equifax. Try to find a company that reports to at least two because it will give you the best chance of seeing your score improve.
• Companies like Rent Reporters will actually remove your rental history from your credit report if you cancel your contract with them. (Hmmm…we don’t like that.)
• Some rent reporting companies are only available if your landlord or property management company uses their service.
• Some rent reporting agencies can be expensive. Many charge a one-time fee for starting the service that can range up to almost $100, and then you will be charged a monthly fee of $5.99 – $9.95. 

Ultimately, the big takeaway here is that if you’re paying an agency to report your rent, you want to see positive results. If the payments aren’t being used to calculate your credit score, then you may want to put that money to better use.

Are there faster ways to improve my credit score than rent reporting? 

There are other ways for you to start building your credit score that don’t require paying a rent reporting agency.

Open a checking account

If you don’t already have a checking account, open one up. Checking accounts won’t contribute to your credit score, but they will help you build a relationship with a bank. 

An account in good standing will help your chances of getting approved for a line of credit with that bank as a valued customer.

Secured credit cards

Secured credit cards look and feel very much like traditional credit cards. The biggest difference is that you agree to pay a cash deposit upfront to guarantee your credit line.

Think of it like a ‘security deposit’ that acts as insurance for the bank if you miss a payment. The best way to use these cards is to make small purchases and then pay off the balance each month.

Loan co-signer

Another option for people trying to build credit is to ask someone with a good credit history to cosign a loan with you, like your parents or a spouse. Your loan payments will then go towards building up your good credit history.

Credit management

Part of building up an excellent credit score involves constant care and management. If you take care of it, you will see the benefits as that number keeps getting higher.
Check out our article, How to repair your credit when it’s really bad, for more tips on working on your credit score.

What is a VantageScore 3.0 credit score?

We already mentioned that FICO scores generally don’t include rent payments as a part of your credit score, even though the rent payment history shows up on your credit report.

But what many people don’t know is that FICO is not the only credit scoring company out there. VantageScore is also a credit scoring company, and they do include rent payments in calculating your credit score. (Whoo hoo!)

Currently, upwards of 2200 financial institutions and 10 out of 29 of the largest banks use VantageScore 3.0. That being said, the FICO score is still used by 90 out of 100 of the top 100 biggest lending institutions. And unfortunately, you don’t have any control over which credit scoring service they use when evaluating your creditworthiness. (Grrr)

What’s the difference between FICO and VantageScore 3.0

Aside from slightly different scoring ranges, the most significant difference between the two is what factors are weighted more heavily in your score calculation. This table lays them out side by side — the top being the most important and the bottom having the least effect on your score.

One of the advantages of the VantageScore 3.0 is that they don’t require an account to be open for a certain amount of time before they start counting it towards your credit score. This is a benefit in rent reporting because it can have an immediate impact on your credit.

Should I pay for a rent reporting service? 

The renters who benefit the most from rent reporting are those with no or little credit. If you are unable to find other ways to build up your credit and rent reporting is the last-ditch resort, then it can be worth it. But only if they can guarantee you that your payment history will be used to help calculate your credit score.

If you decide that a rent reporting agency is the path you need to take, be sure to ask a lot of questions before signing up with an agency and get guarantees in writing about what scoring models you can expect your payments to contribute towards. Check here for more tips on how to shop for a rent reporting service.

As we mentioned above, always check with your landlord before looking into a rent reporting service because they may be willing to start doing it for you. 

The catch 22 of credit 

You need credit to build credit. It’s a frustrating dilemma for many renters. 

Without credit, many renters experience financial exclusion from mainstream financial products and services on a daily basis. They manage their finances primarily on a cash basis in a world that is increasingly “cash unfriendly” and pay premium prices for everyday services like utilities.

On the surface, rent reporting seems like it should be an incredibly simple way for renters to prove that they are financially responsible. But because the big money institutions still don’t quite see it that way, the benefits of paying for rent reporting may not be as significant as they could be. 

If you have no credit score or a very bad one, rent reporting can be a really good option for you. The average credit score can be increased by 29 points which is really helpful when you are starting from a very low score. If you are in the Fair credit score zone above 630 you may want to explore other ways to build your credit history before trying rent reporting.