Does paying rent build your credit score?
Your credit score is a number that tells lenders if you usually pay your bills on time, are able to keep your credit card balances low, and are able to manage different types of credit, among other key factors. So, when you make on-time payments, your credit score may improve or remain the same if it is high. Based on your credit score, lenders may be willing to extend new credit or a loan to you.
The latest versions of VantageScore®(4.0) and FICO® Score (Score 9) use rental payments that land on your credit report as elements to generate your credit score.
How to get credit for the rent you pay
If you regularly pay your rent on time and in full, you can have your good payment history reported to credit bureaus to help raise your credit score through a rent-reporting service. Know that any rent-reporting services could require a fee for the service, which is usually paid on a monthly basis.
When you sign up with a rent-reporting service, you will actually pay your rent directly through the service. The rent-reporting service will then transfer your rent, minus service fees, to your landlord. They will report each positive payment to the credit bureaus.
Enroll with a rent-reporting service
Talk with your landlord.
Before you research rent-reporting services available to you, talk with your landlord: she or he may already be enrolled in a rent-reporting service, which can reduce or limit the fees you pay for the service. If they are not already affiliated with a rent-reporting service, be sure that they will be open to participating as she or he will need to accept your rental payment each month through the service.
Research rent-reporting services.
The two main factors for finding the rent-reporting service that meets your needs are:
- How many of the three credit bureaus receive your rental payment history from the service, and
- How much the service costs.
Before committing to a rent-reporting service, be sure that the services will report to the three credit bureaus. Keep in mind that rent-reporting services might charge a fee.
Select your service and setup your online profile.
Follow any instructions you may have been provided with and take this opportunity to ask your contacts at the rent-reporting service any questions you may have.
Confirm that your landlord is set up to receive payments through the service.
Most rent-reporting services will have you send them your full rental payment. The rent-reporting service will subtract their fee then they will send the remainder to your landlord to complete rental payment. Each service will need some information from your landlord to set this payment up, so be sure to assist him or her as needed.
- Confirm that your first month's payment is correctly submitted through the rent-reporting service.
Request your credit report from Experian™, Transunion® and Equifax® to confirm that payment was noted.
You may also contact your credit-reporting agency to find out how long it may take for rental payments to be reported. Your credit report should show your rental payment in your credit history. If it doesn't, work with your rent-reporting service and credit bureau to ensure the payment is recorded.
For this final step, wait at least 30 days after your first month of rent is reported through your rent-reporting service and request a credit report from at least one, if not all three, credit bureaus. Keep in mind that you may only be able to request one free report from each of the credit reporting bureaus per year.
Will paying rent increase your credit score?
If you or your landlord are not enrolled with a rent-reporting service, your rental payments will not make it to your credit reports.
However, if you and your landlord have enrolled with a rent-reporting service, your monthly rental payments will be reported to credit bureaus and will appear on your credit report.
But just because your rental payments are reported to credit bureaus and exist on your credit report doesn't mean that your credit score will immediately increase. To understand why, let's talk about how on-time payments are used to generate credit scores.
Is credit history a big factor when calculating your credit score?
The two main credit scores used by lenders are the VantageScore® and FICO® Score. Both scores consider your history of credit card or loan payments. For example, your scores may decrease if you miss payments but improve if you make consistent on time payments.
Your credit history under both scoring models may include your rental payments, which can improve your score. Yet there are different kinds of credit scores and not every kind will include rental payments.
When you are looking at VantageScore® 3.0/4.0 or FICO® 9 and you are enrolled in a rent-reporting service, your on-time rent payments could increase your credit score with each on-time rental payment (assuming all of your other credit accounts are also in good standing).
Keep in mind that your credit utilization ratio may be impacted by using a rent-reporting service, but these consequences could be minimal, depending on your recent history. Typically, credit scores look at the past two years of credit history, so you can build up two years of positive payments through a rent-reporting service that can contribute to your growing credit score.
Which credit scores do on-time rent payments affect?
While VantageScore®3.0 and 4.0 and FICO® Score 9 use rental payments in their evaluation of a borrower's credit history when generating their most widely available credit score, they also provide lenders with different types of scores. For example, if you are looking for an auto loan, FICO® Scores will use the factors of your credit history that typically suggest that you can fully repay an auto loan: and rent may not be one of those factors.
Likewise, those requesting the credit scores (a landlord, a utility, a car dealer, a mortgage lender, etc.) pay to receive your credit score as they evaluate your application. But they may not be requesting VantageScore® 3.0/4.0 or FICO® 9: so even if you are enrolled with a rent-reporting service, the requester won't see rental payments on your credit report, minimizing the benefit of your reported rental payments.
Does missing rent hurt your credit score?
The answer is — it depends. As discussed above there are many different facets to consider when it comes to rent-reporting services and your credit score. Let’s explore the different ways that missing rent may or may not affect your credit score.
Your landlord and rent-reporting service do not report missed rent to the credit bureaus
If neither you nor your landlord are enrolled in a rent-reporting service or if your landlord doesn't report a missed payment to a credit bureau, missing your rental payments will likely not hurt your credit score.
Your landlord reports your rent payment as delinquent
A landlord can report any missed payment to a credit bureau, which will land on your credit report. That missed rental payment will act as a negative mark on your payment history and as payment history is one of the most important factors in calculating your credit score, your score will likely go down.
You are enrolled in a rent-reporting service
Since rent-reporting is opted into by customers, it is possible that only positive behavior will be reported. Keep in mind that, however, that rent-reporting services may report any missed rent payment to their connected credit bureaus. The missed payment on your credit history may drive down your credit score.
Your landlord turns over your missed rent to a collection agency
Any payments, rent or otherwise that are turned over to a collection agency will immediately be reported to all credit bureaus, which will drive your credit score down.
When should you report rent to credit bureaus?
If you pay your rent on time every month, reporting your rent to credit bureaus can be a safe way to add positive payment behavior to your credit report. Rent reporting is a great option for students or those seeking to establish their credit history, as an alternative to taking on loans or lines of credit that might encourage additional spending.
For those that pay rent on time, the important calculation to make is to see if paying for a rent-reporting service is worth the increase in credit score. The rent-reporting agencies themselves have reported gains in credit scores from a few points to hundreds of points, but any changes in your credit score will depend on a number of factors that include your credit utilization ratio, the mix of credit you currently have open, and credit history for any other open lines of credit. So while paying rent and having it reported to credit bureaus can make a positive impact on your credit score, it will only ever be one of many ways to drive your credit score higher.
