Over 68% of the people in the United States rent their homes. At the same time, credit reporting agencies do not necessarily receive reports about rent payments or failure to make rent payments. With a landlord's help and the proper reporting tool, a renter can build their credit by making timely rent payments.
Why is it helpful to have rental payments on your credit report?
Building a solid credit score is essential, whether you are just starting as a renter or if you plan to buy a house, purchase a car, or secure credit for other purposes.
How much can rent payment reporting affect your credit score?
A study done in 2017 by one of the three big credit reporting agencies, TransUnion, showed that subprime renters (those with a credit score under 620) who make timely rental payments for one-year could increase their credit score by as much as 26 points.
Freddie Mac has operated a rent reporting program since August 2021 that documents positive rental histories. Missed payments won't count against you but could cause you to be unenrolled in the program. Fannie Mae offers the same program; you need a credit score of at least 620 to participate.
Keep in mind that the intent of reporting rental payments is to boost your credit score. If you fall behind on rent consistently, it could negatively affect your credit score. If your landlord turns to a collection agency to collect your outstanding payments, you will likely experience a drop in your credit score.
1) Build your credit to rent
When a landlord screens prospective tenants, they look for renters with a documented history of paying their bills on time. An applicant's credit report will show the number of consecutive payments made on any outstanding debts and if the payments were made on time.
2) Build your credit to buy
Mortgage brokers and lenders look at your income, debt-to-income ratio, and credit score to determine whether you qualify for a mortgage loan and the interest rate they can offer you. They're also interested in your credit history, which helps them assess your likelihood of making timely payments.
3) Build your credit for a personal loan or credit card
Loan officers who handle short-term loans like car loans use an individual's credit score and history to determine loan rates. Credit card companies use the same framework to set an applicant's credit limit and the interest rate applied to any outstanding balance.
Because credit bureaus don't automatically collect information about rent payments, you need to take steps to make sure your rent payment history shows up on your credit report.
Three ways to report rent payments to credit reporting agencies
1) The property manager or landlord reports tenant rent payments
Your property manager or landlord may already report rent payments to a reporting service. If your landlord uses a rental payment service to accept online payments, the service may automatically send the payment information to credit reporting agencies. Landlords who use such a service typically see an improvement in on-time rent payments when tenants are incentivized to pay on time because it will show up on their credit history.
2) You can report rent payments yourself if your landlord is willing to verify your payments
With your landlord or property manager's approval and participation, you can set up a service that will report your rent payments to credit reporting agencies. These services can be free for tenants, but the landlord may charge you a reporting fee.
3) Do it yourself and pay a fee
Another way to report and verify rent payments with credit reporting agencies is to subscribe to a service that charges you, as the tenant, a monthly fee to handle such reporting. Some services offer rewards points and other perks like merchant discounts as part of your subscription, but the main incentive is the opportunity to build your credit history.
How to Choose a Rent Reporting Service
Before you choose a service, check whether your landlord is already working with one. If not, ask a few questions to determine which one is the right service for you.
Questions to ask a rent reporting service
What does the service cost? Some services are free to tenants, but they may charge your landlord a fee. Compare the cost and the value of features for each service.
What do you get? Find out if they provide you with a credit report or record of payments. Determine if the service is user-friendly –you are more likely to use it if it's easy. In California, landlords of assisted housing developments must offer tenants the option to report rent payments to at least one credit bureau for a maximum fee of $10 per month.
Is the service easy for the landlord? If the service requires your landlord to verify your rental agreement and rent payments but is too time-consuming or requires too many steps, your landlord may not agree to participate. If your landlord does not use the service, you'll have to pick one that accesses your bank account to verify payments.
Which credit bureaus will receive your information? Rent reporting services choose which bureaus they work with – ideally, you can find a service that works with all three.
How soon will your rent payments appear on your credit report? Reporting takes about a month for most services.
Can you easily cancel the service? Most rent reporting services use a subscription model and charge monthly or yearly fees.
If you cancel, is your rental history removed from your credit report if you are no longer paying for the service?
Can you add a spouse or roommate? Some services allow you to include a spouse or roommate at no additional charge.
Are past rental payments reported? Some services include up to two years of rental history with your basic fee, while others charge an additional fee for past payment reporting.
What's the service's reputation? Look for established services with good reviews.
Tenants who submit verification documents and other information as part of the applicant screening process can do so safely and securely through RentSpree. The RentSpree Tenant platform allows tenants to apply for multiple apartments, participate in tenant screening, and pay monthly rent.
