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How rent impacts your credit
Reporting rent payments to build credit
Most people are surprised to learn that paying rent on your apartment, home or condo can help you improve your credit score. That is if you pay rent on time and take proactive measures to report your rent payments. That’s because unlike credit cards, mortgage, and loan payments, rent payments don’t usually automatically appear on your credit report. It’s likely your largest expense per month, so why not report rent payments to improve your score? Especially, if you have a thin credit file (fancy speak meaning very little credit) or are trying to improve credit. But how to report rent payments to credit bureau, you ask? Well there are two ways to boost your credit score a few points — ask your landlord or do it yourself.
How to find out if your rent is being reported
The easiest way to find out if your rent payment is being reported? Simply ask your landlord. Landlords can sign up directly with Experian or TransUnion or use a rent payment service that is part of their property management software. This type of program enables landlords to enter information about your payment history each month and submit rent payments to the associated credit bureaus. All three major credit bureaus — Equifax, Experian, and Transunion — do include rent payment information in a credit report if they receive it.
How to report rent payments to build credit
If your landlord doesn’t report rent payments and is unwilling to do it, you can do it yourself by using a rent payment reporting service for a fee. The reason you have to use a rent payment reporting service is because credit bureaus want a neutral, third-party to verify payments. (So, not you.)
Rent reporting services compared
|Rent Reporting Service||Details|
|Rent Reporters||There is a one-time enrollment fee of $94.95, which includes up to two years of reported rental payments, then the service is $9.95 per month. It reports to TransUnion and Equifax.|
|Rental Kharma||The initial setup is $25, and the service is $6.95 per month. During enrollment, you can report payments made in the previous 24 months for a fee of $60. It reports to TransUnion.|
|ClearNow||This service debits your rent from your checking or savings account. There’s no cost to tenants, but your landlord must sign up. If you opt-in, your payments are reported to Experian RentBureau.|
|CreditMyRent||This service charges a monthly fee of $6.95 in addition to a one-time fee based on the tier you choose. It reports to TransUnion.|
|CreditRentBoost||This service charges a monthly fee of $5.95 in addition to a one-time fee of $25. It reports to TransUnion.|
|Esusu||Free. A mobile app that also helps you borrow money from peers, Esusu reports rent payments to Equifax.|
|LevelCredit||Charges a $6.95 monthly fee to have your rent and utility payments reported to Equifax and TransUnion.|
|PayYourRent||This service debits your rent from your checking or savings account and requires your property to sign up. It reports to all three credit bureaus.|
|Rock the Score||This service charges a monthly fee of $8.95 in addition to a $25 one-time fee. It reports to TransUnion and Equifax.|
|Zingo Credit||Free. If your rent from a property manager or individual landlord, then you can link your financial accounts directly to their platform. Your rent data is sent Equifax or TransUnion. Add-on services are available to report up to 24 months of prior rent payment ts for $19.95 (current address) or $29.95 (prior address).|
How much will my credit score increase if I report rent payments?
Rent payment reporting builds your credit based on good payment behavior, which can mean a cheaper car loan or lower interest rate in the future. But there’s an important detail here: Although your rent payment history may show up on your credit report, it may not always contribute to your credit score. For example, the newer FICO 9 and VantageScore 3.0 models include rent payments but the older, more widely used model of FICO 8 doesn’t.
Rent payment reporting services claim there is a positive impact. According to Esusu,
- People who verify two years of rental history and who already have established credit could potentially see an increase of 25-50 points if their rental history doesn’t contain any late payments.
- People who don’t have a credit score at all could potentially jump up to the mid-600s by adding two years of rental payments to their credit file.
A 2020 joint study from the U.S. Department of Housing and Urban Development (HUD) and the Policy and Economic Research Council (PERC) found subprime consumers who made timely rental payments saw their credit scores go up an average of 26 points, significantly increasing the number of consumers in this category whose credit scores topped 620.
Using rent payments to establish a credit history
Being credit invisible means that you don’t have any credit history with the three major bureaus. About 10 percent of Americans fit into this category, and almost 20 million more have credit scores that don’t have enough credit information or recent history for the agencies to score. Many of the people who fall into these categories are renters.
Being in this category isn’t all bad, of course, since it means you’re not drowning in debt. But it also means that you don’t have enough of a credit score for you to give financial institutions confidence that you’re a good candidate for a loan. So this invisibility can make it tough for you to rent a car, buy a home, or even get an apartment. Therefore, if you are renting an apartment, you can use this to build your credit history by reporting your rent payments — and making yourself no longer invisible.
The joint HUD/PERC study jibes with information from a TransUnion study which indicates that rent reporting helps motivate renters to pay on time. The reporting holds the renter accountable to the agencies, adding positive pressure to get them to pay on time. Not only will they avoid conflict with their landlord (and potential late fees), they’ll have a positive benefit of building that credit score or pulling it out of the “invisible” category. This figure was even higher in Generation Z and Millennial renters, who are most often the ones who are “credit invisible” and would therefore see the benefit of rent reporting. In some cases, the study showed that the majority of renters would choose a unit that included automatic rent reporting to an identical unit that did not offer that feature.
Other strategies to build credit in addition to reporting rent payments
If you’re looking to build credit, there are maybe faster strategies, such as a secured credit card or credit-builder loan from a credit union. But paying your rent on time and reporting that information to the reporting agencies can often be the right move. It can help you move out of the “credit invisibility” category. Furthermore, it’s been shown that renters with poor credit can raise their scores significantly simply by doing what they need to — paying rent. If you want to raise your credit score — especially if you want to transition from being a renter to being a homeowner — then it may be a good idea to try and get your score up by paying your rent, in full and on time. When you’re looking for a new apartment, ask about rent reporting, or talk to your current landlord about whether it’s an option for you.
What to look for in a rent-reporting service
First, check to see if your landlord/property manager already has a service in place for free. If you need to find your own service, make sure to evaluate the following:
- Fees: Cost to join, monthly fee and “look back” fees (how many months of back history will they add for you)
- How they protect your data
- Which credit bureaus they report to (preferably all three)
- How long it will take before payments appear on your credit report
- How easy it is to cancel
- What happens in the case of a dispute with your landlord. Is this reported as nonpayment, even if you live in a state that allows renters the right to withhold payment when the landlord fails to maintain habitable living conditions?
Using a credit card to make rent payments
Some properties allow you to pay your rent using a debit or credit card. Regular, on-time credit card payments will also help you boost your credit score. If you do this, make sure to pay it off in full so you do not carry a balance for your rent and pay interest on it. Also, consider the extra fee your landlord may charge you if you pay by credit card. This is typically 3% to offset their fees for taking the payment by credit card. It all adds up!
How do late payments affect my credit score?
If you regularly miss payments, rent reporting will potentially hurt your credit score rather than help. Anyone who pulls your credit report will see your spotty payment history which could make them hesitant to lend to you. Rent-reporting companies will report the missed payment if more than 30 days late. If you skip your rent, then your property manager will begin the eviction process and likely send unpaid rent to a debt collection. The unpaid rent leading up to an eviction may be listed as negative on your credit reports and collection accounts seriously damage your credit scores.
Does applying for an apartment or home hurt my credit?
When you submit an application for rent, a landlord requests a copy of your credit report. This request initiates a hard inquiry credit pull that does affect your credit score. The good news is that a single hard inquiry doesn’t impact it much, and will no longer affect your credit after 12 months. Your credit score will take a hit if too many hard credit inquiry requests come in over a short period of time.
Managing your credit
Managing your credit is an important part of life and directly impacts the cost of future credit cards, auto loans, and more. Paying rent on your apartment, home or condo is a great way to demonstrate responsible behavior to potential creditors — to both establish, build, or rebuild your credit. It doesn’t happen automatically though, so figure out how to report rent payments to credit bureau — ask your landlord for the service or look to one of the rent payment services to report rent payments for you, for a fee. And, above all else, pay that rent on time.
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