Many renters might ask the question of how their monthly payments are affecting their credit scores. The simple answer is that, traditionally, it doesn’t. At least not if you are making your rent payments on time. However, it is becoming more commonplace lately for positive rental history to show up in consumer credit reports.
Not all landlords bother to report even rent payments that are late, but those that do will negatively impact your credit. Even if your landlord isn’t reporting your rental payments, it is a good idea to consider how to make your timely rent payments work toward repairing your score. Let’s take a closer look at how renting and credit scores relate to one another.
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Is There a Credit Score Tied to Rent?
While there isn’t a separate credit score just for rental payments, there are some companies that offer to track rental information. Some landlords may report rental history information to these services so that other landlords may pull these reports in order to determine what type of renter you have been. In addition to the other information that is checked when you fill out a rental application, your landlord may also check your credit reports and review your credit score. If the information on your credit report results in your application being denied, the landlord is required to provide you with a notice that describes how you can request a free copy of that credit report.
Once per year, you are entitled to a free copy of your credit reports from each of the three major bureaus. Since your credit score informs lenders of your financial reliability, you should consider reviewing them before you apply to rent a new place. Looking to get your credit checked? Click here and we can help you get started.
Or, if you already know that your credit could use a little help– that’s one of our specialties. Click here to enroll in one of our credit repair programs now.
Who Can Report Rent Payments?
If submitted through the proper channels, each of the three main credit reporting bureaus (Equifax, Experian, and TransUnion) will include rent payment history on a credit report. However, this isn’t something that you can report on your own behalf. If you or your landlord is enrolled with a rent-reporting service, then your monthly payments can be submitted and will be included on your credit report. You can request for your landlord or property manager to report your rent payments for you, but these reporting services must be paid for and not all landlords will be willing to do so.
If you are willing to pay for such a service yourself, then there are a variety of third-party companies who can report your rent payment history to the proper agencies. If your credit history is just beginning or in need of repairs, the cost may be worth it to demonstrate that you can pay your bills on time.
Be aware, however, that just because your timely rent payments are being submitted and are showing up on your credit report, it does not necessarily mean that your score will increase immediately. Defined lease term rental payments appear similar to an auto loan, while month-to-month rental contracts appear similar to a credit card.
Which Credit Scoring Models Are Affected?
Older scoring models do not calculate rental payments even when they are present on a report. However, newer models such as FICO 9 or VantageScore 3.0 and 4.0, are incorporating rental payments in their evaluations. These services also provide lenders with different types of scores, depending on the type of loan. If you were looking to take out an auto loan, for example, FICO would include many of the other factors of your credit history, but likely not your rental payments. What information a lender sees might also depend on the model that they request, as they may not be paying for the most updated versions of these services.
How to Get Credit for Your Rent Payments
As we stated earlier in this article, it is possible for you to get your rental history reported to the credit bureaus. If you regularly pay your rent on time, you should consider using that to help raise your credit score through a rent-reporting service. Most of these services work by you paying your rent directly to them, which is then transferred to your landlord after they take their service fees from that payment. The service then reports each of these positive payments to the credit bureaus outlined in your contract.
Rent reporting can be a great way for those trying to establish or repair their credit history, especially as an alternative to taking out lines of credit or applying for loans. The important distinction to make is whether the cost of a rent-reporting service is worth the increase it provides to your credit score. While some of these agencies claim gains for customers’ credit scores ranging anywhere from a few points to hundreds of points, the truth is that there are a lot of factors that go into determining your overall score.
Ultimately, there are other methods of repairing your credit that may be more reliable.
Can Late or Missing Rent Hurt Your Credit?
Again, the simplest answer here is that it depends. Landlords who only let a handful of properties, for example, are often not enrolled in rent-reporting services. However, your landlord or property manager can report your delinquent rent payments if they wish, causing them to appear on your credit report. As payment history is one of the most important factors in determining your credit score, this will likely cause your score to take a hit.
Likewise, if you have hired a rent-reporting service and then miss a payment, they will also report that delinquency to the credit bureaus that they report to, causing your score to drop. In addition, any rent payments that are turned over to a collection agency are immediately reported to all credit bureaus. Collection accounts will seriously damage your credit score.
Regardless of what information is reported and how it is reported, developing financial responsibility is the best practice for your future. Repairing your credit is only possible if you adopt good credit behaviors and face any potential past mistakes head-on.
How Does a Rental Application Affect Your Credit?
When you fill out an application to rent, you give that landlord or property manager permission to request a copy of your credit report. This is referred to as a “hard credit inquiry” and it does impact your credit score. While a single inquiry like this will not affect your credit score too much, a lot of hard inquiries over a short period of time can hurt your score in a big way. Limit the number of inquiries for new credit when applying for anything that requires a credit check.
The good news is that these kinds of inquiries affect your credit mainly within the first six months once they are made. After twelve months, they will no longer affect your credit and age off of your report entirely after two years.
Bottom Line: Renting Can Help but is Not the Best Way
In closing, it is possible to use your monthly rental payments to help improve your credit score. However, if you are having to hire the service yourself, it may cost you more money than it may be worth. Check with your landlord or property manager to see if they already report your monthly payments to a rent-reporting service and, if they do not, ask if they would consider doing so.
If it is not possible or is simply too expensive of an option for you, there are honestly better and more reliable ways to repair your credit score.