Is Reporting Rent to the Credit Bureaus Worth It?

rent reporting (1)

By Lauren Bringle Jackson

Usually, renting an apartment doesn’t show up on a credit report unless you continuously miss payments and the landlord reports your debt to collections. It’s sort of a Catch-22 situation – rent won’t help you build credit, but it could hurt your credit score if you don’t pay.

Some services promise to report your monthly rental payments and rental history on your credit report now, too – for a fee. They even promise that if you pay your rent on time each month, this reporting could improve your credit. The questions are whether these services live up to the hype and whether they're worth it.

The short answer? According to one credit expert, probably not. But before you completely write off rent reporting, here’s what you need to know to make the right decision for yourself.

In this guide, we’ll walk through:

  • Why building credit is important
  • What credit bureaus are and why it’s important to build credit at all three credit bureaus
  • What makes up a credit score and why rental payments aren’t usually included
  • Options for reporting rent payments

Ultimately, we’ll get to the final question - is rent reporting really worth it?

But first ...

Why is building credit important?

Good credit plays a vital role in your financial life. When you apply for a credit card or loan, the lender typically wants to see a credit reference. Why? The lender wants to know you’ll pay them back; they use your past payment behavior as a guide.

Credit is essential for getting access to:

  • Credit cards
  • Car loans and other loan types
  • Mortgages
  • Certain jobs, particularly ones needing security clearance or that handle sensitive financial information
  • The best insurance premiums in most states
  • The lowest interest rates on loans

While there are many ways to build credit, rent isn’t usually one of them.

The 3 major credit bureaus – and why building at all 3 matters

There are three major credit bureaus: Experian, Equifax and TransUnion. In a nutshell, these consumer reporting agencies:

  • Collect and research a person’s individual credit information
  • Publish individual credit reports
  • Partner with lenders and credit issuers to help them make loan decisions based on that information

Different lenders pull from (and report to) different bureaus, which means your credit report could look different at each bureau. (Learn how to read your credit report.) If you don’t have credit with the bureau your potential lender pulls from, you could be denied access to a credit card, loan, or other credit product by that financial institution.

For example, if you only have credit with Experian but the lender you want to use pulls data only from TransUnion, you could be denied because the lender can’t access your credit history.

Having a positive credit history at all three credit reporting agencies increases your likelihood of getting approved for credit products such as credit cards, loans, etc.

On credit scores and the FICO scoring model

As a refresher, your credit score is a number based on a formula that’s based on your credit report. It boils down the information from your credit report into a number that ranks how much of a credit risk you pose to lenders.

Your score ranges from 300-850, and the higher the score, the better. There are five factors that go into your credit score:

  1. Payment history
  2. Amounts owed
  3. Length of credit history
  4. New credit
  5. Types of credit

While there are a few different credit scoring models out there, the most common credit score model used by lenders is the FICO score. In fact, FICO reports that their model is used by 90 out of the top 100 largest lending institutions for risk assessment.

According to the FICO website:

“The FICO Score helps lenders make accurate, reliable and fast credit risk decisions across the customer lifecycle. The credit risk score rank-orders consumers by how likely they are to pay their credit obligations as agreed. The most widely used, broad-based risk score; the FICO Score plays a critical role in billions of decisions each year.”

There are different versions the FICO scoring model, however. In other words, there isn't just one, monolithic FICO score. While it varies among lenders, the most common FICO model in use today is model 8, according to Barry Paperno, a credit scoring expert with decades of consumer credit industry experience at both FICO and Experian.

Typically though, it takes a long time for lenders to adopt the newer models.

“For example, it's only been within the last five years or so that the most widely used FICO model – FICO 8 ("8" as in 2008) – achieved that distinction. There have been older models, such as the FICO NextGen score, that have never gained a wide following,” Paperno said.

For many of these older models, rent payments – whether reported to the credit bureaus or not – are not factored into the equation.

Why aren’t rental histories included in traditional FICO scoring models?

“The decision to include any piece of credit bureau information in the FICO scoring formula rests on whether the score development process finds such information (payment history, card balances, account age, for example) to be predictive of future risk once vast quantities of it have been studied,” Paperno said.

Basically, FICO needs to be certain that the information factored into its model can actually predict for lenders how much of a credit risk a potential borrower could be.

“If the information is present, but not predictive (age, gender, employment), or has simply not been available on a credit report (rental history, income), it's left out of the formula,” Paperno said.

Now that FICO feels confident the rental data they’ve seen can indeed help predict creditworthiness, though, the newer scoring models are starting to incorporate this data.

“While the FICO scoring models used by most lenders have traditionally ignored rent information even when reflected on a credit report, the latest FICO model – FICO 9, released in 2014 – incorporates rental data when added to the report being scored,” Paperno said.

The problem for consumers now, according to Paperno, is the slow pace with which new scoring models are adopted by lenders.

Preparing for the newer models - rent reporting options

Rent reporting may not help if you’re applying for a new credit line this year. But as newer credit scoring models are adopted, having that longer credit history could be beneficial for you in the future. Having a history of paying rent on time could indicate to future lenders that you'll be more likely to pay other credit accounts on time too. On the other hand, having a history of missed or late payments could indicate that you're a higher credit risk.

With financial matters, it’s usually better to plan ahead. If you decide to explore having your rent reported to the credit bureaus, here are some options.

Ask your landlord first

Before paying for a rent-reporting service, check with your landlord to see whether the landlord is already reporting your rent payments. Some property management companies, particularly larger, national chains, already report your monthly rent payments to the credit bureaus, while others don’t. The best way to find out is to ask.

If credit reporting is automatically included, there’s not really a con to taking advantage of a service that’s free for you to use or already included in the cost of your rent.

If your property managers do not report rent payments already, there are companies you can pay to report your rent for you.

Individual rent-reporting options

If you decide to pay for rent reporting (we explore whether it’s worth it below), try to choose an option that reports to all three credit bureaus to get the biggest bang for your buck. Just be aware of any fees or monthly charges before you sign up.

To make it easy for you, here are some rent reporting options, with a check mark next to which credit bureaus they report to.

Screen Shot 2019-05-14 at 11.27.25 AM ** Rock the Score only reports to Equifax if your landlord is a property management company.

(See additional resources below for links to rent reporting options)

Is rent reporting really worth it?

The short answer, according to Paperno? Probably not yet.

“It's unlikely that timely rent payments will help obtain any of the major forms of credit – cards, mortgages, auto loans – without a lender willing to work with higher risk borrowers. Yet many landlords still look at the actual credit report along with the score. So, for prospective renters with some questionable 'established' credit and a favorable reported rental history, adding positive credit in this way could help their chances,” Paperno says.

If your future landlord reviews credit reports to determine whether you make payments on time and in full, then putting positive information on your credit report could benefit you.

“Unfortunately, however, other than in this specific example there really isn't much upside to paying for positive rental data,” Paperno concludes.

Additional resources

About the author

Lauren Jackson is the Content Marketing Manager for Self and editor of their blog. She's passionate about the intersection of business and social good, smart budgeting and budget travel. She believes you can have an amazing life – even if you don't have the best health or the most wealth.

Written on May 21, 2019

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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