Renters comprise a large amount of people in the U.S. While many renters say they don’t mind not owning a home with a big mortgage, they are disadvantaged in at least one way. If they make their monthly rent payments on time, just as homeowners make their monthly mortgage payments on time, it does nothing to help their credit score.
Except in some cases where property managers report rent payments to the credit bureaus, they generally go unreported. For renters who need to build their credit so they can eventually qualify for a mortgage, that is a big disadvantage. However, for a relatively small fee, there is a way renters can change that and start getting credit where credit is due.
How Rental Payments Impact Your Credit
Generally, rent payments have a minimal impact on your credit score. But, that shouldn’t discourage you from finding a way to have them reported to the credit bureaus because they can help you in certain circumstances.
The good news is that all three of the major credit bureaus – Experian, TransUnion, and Equifax – do include rental payments in their credit reports when they are reported. The problem is the most widely used credit scoring model – FICO 8 – doesn’t use rent payments in calculating credit scores.
However, the newer credit scoring models – like FICO 9 and VantageScore – do. The problem with that is the newer credit scoring models are not yet used by the majority of lenders. So, if a lender uses one of the newer credit scoring models, it may include rent payments in scoring your credit but it’s hard to know which scoring model a lender uses.
Rent payments show up on credit reports as a “tradeline,” which is similar to how mortgage or car payments are reported. However, they are still not given the kind of weighing that is applied to mortgage or car payments. It depends on the lender as to how much importance rent payments are given in calculating your score.
Still, having rent payments reported can benefit you because a prospective landlord will see your payment history when he pulls your credit report, or you might find a lender that does weigh rent payments more heavily.
How to Get Your Rent Payments Reported
As previously mentioned, some property managers do have relationships with the credit bureaus. If you rent from a property manager, you can ask if they report your rent payments. If they don’t, you can hook yourself up with a rent reporting service that will. Rent reporting services act as a sort of intermediary in rent transactions. You make your payment to the reporting service and, for a fee, it will pass your payment along to the landlord. In the process, the reporting service reports your payment to the credit bureaus.
In some cases, the landlord or property manager will also have to register for the service and the service may require that the landlord pay all or a part of the fee. It benefits landlords because they will know they have a conscientious tenant who is more likely to make on time payments.
The fee structure varies. Some services charge an enrollment fee and a monthly fee. A typical fee arrangement might consist of a $40 enrollment fee and a recurring fee of $9.95 per month. Others charge just a monthly fee or a fee per payment.
It is also possible, for an additional fee, to have the reporting service do a look-back and report your rent payments for the previous 24 months. The service will first need to verify your payments with your landlord. When that is done, you will extend your credit history by two years, which is always good for your credit score.
One service that you can use to pay your landlord and have your payments reported to all three credit bureaus is RentTrack. In addition, RentTrack only charges $6.95 per payment for checks and ACH payments or 2.95% for credit card payments.
Choosing the Right Rent Reporting Service
As you consider which reporting service to use, it is important to keep in mind that not all of these services report to all of the credit bureaus. Some may only report to one or two. You want to work with a service that reports to all three. Some reporting services also provide free access to your credit score, which can be helpful in checking your progress as you build your credit.
Ideally, it would be a credit score based on the newer scoring models, such as VantageScore. You will also want to know how soon your payments will appear on your credit report. It would be very helpful if the reporting agency also offers a look-back so you can create an instant reporting history of on time rent payments.