Adding positive payment history to your credit report can be a great way to establish credit. Yet if you don’t have much experience with loans, credit cards, or other traditional types of financing, you might benefit from some alternative history on your credit report.
One option to consider is adding rent payment history to your credit reports. If you consistently pay your rent on time, those good payment habits might benefit you. But there’s a catch — or rather two of them. Many property owners and management companies do not report rent payments to the credit bureaus. And you can’t self report rent payments to the credit bureaus either.
Despite the obstacles, there are still ways to add your rental payment history to your credit reports with Equifax, TransUnion, and Experian. Below you’ll find more information about this credit building strategy, and whether it’s worth the effort and potential cost.
The primary reason you might want to consider getting your rent payment history added to your credit reports is because doing so has the potential to help your credit. A recent study by TransUnion has some encouraging findings where rent reporting is concerned.
Going from bad credit (or even no credit) to good credit can be life changing. There are many benefits of good credit. It can make it easier to qualify for a mortgage or to lease an apartment. Good credit can improve your odds of qualifying for auto loans, credit cards, and more.
When you do qualify for financing, good credit can make it more affordable to borrow money. And you might be able to pay less for auto insurance, utility deposits, and more. You might be able to save thousands of dollars every year by improving your credit score.
On-time rent payments can impact your credit in a couple of different ways. Below is a look at how positive rental history could help both your credit reports and your credit scores.
If an account with your rental payment history shows up on all three of your credit reports, lenders should be able to see that information when they access your credit history. Positive payment history can make a good impression when you’re applying for new financing.
On-time rent payments on your credit report can prove to a lender that you have a track record of paying on time. And that track record can make you a more attractive borower.
It is important to point out that just because your rent payments show up on your credit reports does not mean they will impact your credit scores. Unfortunately, some credit scoring models do not consider rental information.
Consider FICO® Score 8 as an example. FICO Score 8 is one of the credit scores lenders use most often.This credit score version does not include rent payments in your credit score, even if they show up on your credit report.
However, newer credit scoring models below do factor rent payment information into your credit score, as long as it appears on your credit report:
FICO® Score 9 in particular does see a lot of use in the lending world. So, there’s a better chance now than there was in the past of positive rental payments helping you when you apply for new financing like loans and credit cards.
In August 2021, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae would start to consider rental payment history on mortgage applications. This announcement was meaningful because it signaled a new way for would-be homebuyers to reduce their credit risk. Lower credit risk means better approval odds and potentially lower interest rates.
To allow a mortgage lender to consider your rent payment history, you’ll need to give that lender permission to access your bank account data. (Note: you typically have to provide a mortgage lender with several months of bank account statements anyway when you submit your home loan application.)
Once you grant access, the lender can use a software program to search your electronic bank account history for positive rent payments. If that information is available, the system will add the positive rental history to your application details. Fannie Mae’s automated mortgage underwriting system (aka Desktop Underwriter or DU) won’t consider any rent payments that could impact you in a negative way.
As a consumer, you cannot send your rent information directly to a credit bureau to be added to your credit report. Yet there are alternative approaches that might help you get the credit bureaus to add rent payments to your credit reports in another way.
Although there’s still a lot of room for improvement, some property management companies are open to reporting payment history to the credit bureaus. So, you might consider asking your landlord if they’re willing to share your payment history with the credit bureaus through a third-party service such as RentTrack or Experian RentBureau.
Reporting rent payments to the credit bureaus can also be good for property managers — a detail that you might want to share when you make your pitch. According to the TransUnion survey mentioned earlier, two-thirds of renters would be more likely to rent an apartment or home where rental reporting was in place. And 73% of renters would be more likely to pay on time if they knew that their property management company was going to report their payment history to a major credit bureau.
Another possible way to get rental payment information added to your credit report is to pay for a third-party service. There are several companies that you can use here, but some may only report to one of the major credit reporting agencies. Your best bet is to choose a rent reporting company that reports to all three — Equifax, TransUnion, and Experian. LevelCredit is one example.
Getting rent payments added to your credit report might help you build credit in an out-of-the-box way. Yet there are other ways to build credit alongside rent reporting (or in place of it) that might benefit you as well. Two popular options are secured credit cards and credit builder loans.
Qualifying for new credit when you have no previous credit history or a bad credit score can be difficult. Secured credit cards, however, can often help people who are in this situation.
With a secured credit card, you provide the issuing bank with a deposit that’s typically equal to the size of your credit limit. The card issuer’s risk is lowered because the deposit serves as collateral it can access in the event of a default.
You can use a secured card to make purchases just like a traditional unsecured credit card. And if you choose a credit card issuer that reports to all three credit bureaus, the account may help you build positive credit across the board.
Another credit building tool that may help both credit newcomers and those working to rebuild credit is a credit builder loan. A credit builder loan is a type of installment loan designed for the purpose of establishing credit history.
Again, on-time payments are key. If you open a credit builder loan and proceed to pay your lender late, your credit score could go down rather than improve.
Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication. See Michelle on Linkedin and Twitter.
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