When you’re trying to build credit, you want every on-time payment to count. Monthly rental payments may be one of your largest monthly expenses, so does paying rent build credit?
Short answer: not necessarily. While you may be able to build credit by paying your rent on time, it’s not necessarily automatic. Here’s what you need to know about how rental payments can impact your credit score.
Have you been wondering, “can I pay rent with a credit card?” Yes, you can, but for something to impact your credit score, it has to be reported to one or more of the major credit bureaus: Experian, Equifax, and TransUnion. And many renters are surprised to discover that most property management companies and landlords don’t report to the credit bureaus.
In fact, although 35% of adults in the U.S. live in rental housing, rental data makes up less than 1% of all credit data being reported to the credit bureaus.1
When rent payment is reported to the credit bureaus, your apartment lease will appear as a tradeline in the “accounts” section of your credit report. Your report will show the date your lease started, your monthly payment amount, and your payment history for up to 25 months.2
Since payment history is one of the main factors influencing how credit scores are calculated, a history of on-time rental payments on your credit report might improve your score.
Notice I said it might improve your score rather than it will improve your score. That’s because only some credit scoring models consider rental data. Newer versions of the FICO Score, such as FICO 9 and FICO 10, and VantageScore take rental history into account, but many lenders still base credit decisions on older versions.2
If you want to use rental payments to improve your credit score, you have to get those payments on your credit report. The problem is, tenants cannot report their own positive rental history to the credit bureau. You need either a landlord or a third-party credit reporting service to report payments for you.
It’s a good idea to see if your landlord is already using software that can help you report your rent. If they don’t, we’ll provide some third-party credit reporting services later in the article.
So say you get rental payments on your credit report. How much of a boost to your credit score can you expect?
Well, every individual’s credit profile is unique, so there are no guarantees. However, according to Experian’s Credit for Renting study, 75% of people who already had a credit score before rental data was added to their credit file found that adding rental payment history increased their VantageScore 3.0 by an average of 29 points.3
But again, it depends on which scoring model you use and where you’re starting from. When FICO analyzed the effect of adding rental data to its FICO Score 9, it found that very few people who credit invisible people became scorable after rental data was added to their credit file.
“Our research showed that only ~5,000 total consumers (out of 200+ million scorable files) became FICO scorable as a result of the inclusion of rental data currently found in their credit file. In the context of mortgage lending a mere 1,795 consumers had scores that met the generally accepted FICO Score cutoff of 620 or greater once rental data was included in their score calculation.”1
To report rental payment history to the credit bureaus, landlords and property managers have to sign up for a service and pay a fee — either annually, or a monthly fee for actual reports submitted that month. As a result, few landlords report, and those that do are usually property managers of large apartment complexes rather than single-property landlords.
If your landlord doesn’t currently report rental payments, you may be able to convince them to do so. According to TransUnion, 26% of renters whose payment history was reported decreased their late payment rate by 26-50%. And 51% of renters said they’d be more likely to choose a property if their payments were reported to a credit bureau.4
Some landlords do report rental payments to the major credit bureaus, but typically, the process isn’t directly available to them. Historically, only large landlords or property managers with a high volume of tenants reported rent payments directly to credit bureaus via a subscription service or an approved rent payment platform.
Today, landlords large and small have access to third-party rent reporting service. Still, because those services cost money, many smaller landlords don’t want to take on the added time and expense of reporting rent payment. Those that do may pass the cost on to tenants.
Several apps and services can report your rental payments to the credit bureau. However, some need your landlord to verify rental payments.
Self Financial recently acquired LevelCredit. LevelCredit currently reports rent payments to Equifax and TransUnion and utility payments to TransUnion for $6.95 per month or an optional one-time fee of $49.95 to add up to two years of past payments.
In recent years, there’s been a push to require landlords to offer rental payment reporting to their tenants — especially for lower-income people who are more likely to be credit invisible or have thin credit files.
According to a report from HUD, one-half to two-thirds of public housing tenants have credit scores that are rated as subprime (below 620), and many are credit invisible. Because landlords and property managers routinely use a credit check to decide whether or not to rent to potential tenants, having a low or no credit score can limit their housing choices and employment opportunities.
For many of these individuals, rent constitutes their single largest monthly expense. So adding rental payments to their credit history could help them qualify for more affordable mainstream credit options (credit cards, auto loans, and personal loans instead of payday lenders) and even move out of renting and into homeownership.5
California is leading the way. The state’s new law, SB 1157, requires landlords of assisted housing developments with more than 15 units to give all new and existing renters the option to report rent payments, although the landlord can charge up to $10 per month to cover the cost of reporting.6
To date, California is the only U.S. state with such a law on the books, although other states may follow California’s lead.
Of course, the potential downside to reporting rental payments is that on-time payments aren’t the only ones that will be reported. If you pay your rent late or don’t pay at all, this information would make it onto your credit report as well. As a result, those late payments could lower your credit score rather than improve it.
Having rental payment on your credit report isn’t the only way to build credit. The following strategies may be more cost-effective.
Paying rent and having it reported to the major credit bureaus is only one way to building credit score. Whether or not your landlord or property manager reports your rental payments, remember that payment history is the number one factor that influences your credit score. So make your payments on time, every time, and you should see your score improve over time.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).