Why Your Timely Rent Payments Probably Don’t Help Your Credit Score
Even paying a firm to report rent payments is of little use for now
The credit scoring system that lords over so much of our financial lives has operated for decades with a blind spot: A consumer’s record of paying rent hasn’t been a factor in determining their credit score.
A renter with a pristine record of on-time payments is frozen out, while on-time mortgage payments made by a homeowner are factored into credit scores. Two people can have the same track record paying for the roof over their head, but the renter gets no credit.
Lately, the credit bureaus and the credit scoring firms that use the data from credit bureaus have begun to offer a way for renters to get their payment history reported. But rental history goes on a type of credit score most lenders don’t bother checking. And the service is often costly.
For now, it’s better to understand the credit score world and how you can improve your score and provide data to future landlords and lenders yourself.
A primer on credit reports and credit scores: There are three major credit bureaus — Equifax, Experian and TransUnion — that collect financial data about you: paying credit cards on time; how big your credit card balances are; the size of other loans; your payment history on those.
The data in your credit report is used to compute your credit score. The most widely used is the FICO credit score. You actually have three main FICO scores, one each from Equifax, Experian and TransUnion.
To complicate matters there’s also another credit score, the VantageScore. And yes, you have three main VantageScores, too.
Rent and credit bureaus: The credit bureaus recently said they will be happy to include a renter’s payment record in a credit report. But a renter can’t do this directly. That’s led a bunch of third-party businesses to jump in as rent-reporting platforms to send confirmation of your timely payments to a credit bureau. A catch is that your landlord might need to “confirm” the payments for this to happen. So you’ve got to navigate that.
If your landlord/leasing company uses an automated third-party platform to collect rent (auto debits), you often can choose to have the system forward your payment record to a credit bureau.
The consumer-based platforms typically charge an initial enrollment fee of $25 and then a monthly fee that can add up to $80 to $100, or more, a year. If your landlord uses a payment system that will do the reporting, the cost to you may be free. Not always.
If your landlord offers the service, you no doubt have received info about it. If you’re interested in a consumer app, a quick web search of “rent reporting services” will get you to good information.
The limits of rent-reporting, Part 1: Remember you have three credit reports? A rent-reporting service may only send your track record to one bureau.
That might be OK if the next time you want to rent an apartment, you get a copy of your credit report from that credit bureau and attach it to your rental application. But what’s more typical is that landlords have their own preference for credit bureaus, say Experian, and if your rent is only reported to TransUnion, you’re not getting any benefit.
A potential workaround: Automate your rent payments with a direct debit from your checking account. Print out and attach a year or two of those official bank transactions to a rental application. It costs you nothing.
The limits of rent-reporting, Part 2: There are many versions of the FICO Score. FICO Score 8 is currently the version most often used by lenders to size you up. FICO Score 8 does not look at rental payments even if they are in your credit report.
The newer FICO Score 9 does factor in rent payment data, but not many lenders currently check FICO Score 9. Mortgage lenders typically use an even earlier version of FICO scores (4 or 5) that also ignores rent payments.
VantageScore also has multiple versions. VantageScore 3 and 4 do consider rental track record. But it bears repeating: Most lenders check FICO scores, not VantageScore.
Help yourself, for free. Lenders generally have two major concerns: 1. Will you pay them back on time? 2. Are you already weighed down with a lot of debt? Those two questions essentially account for 65% of your FICO score.
To nail #1, pay your credit card bills and loan payments on time. Automated bill pay is an easy way to never slip up. (For credit card bills, all that matters is that you pay at least the minimum on time. That said, ahem, paying more than the minimum should always be a goal.)
For #2, you want a low credit utilization ratio. A mouthful, yes. But easy to grasp: Add up all the unpaid balances on every credit card and divide that sum by the total combined credit limit on those cards. You want the ratio to be no more than 30%. The lower the better. Pull off timely payments and get your credit utilization below 30% and you will see your credit score rise, over time.