If you are renting, you can use your rent payments to build your credit score. That’s possible, even though Nerd Wallet reports that a mere 1% of FICO credit files contain rental entries. But all three major credit bureaus (Equifax, Experian, and TransUnion), and even newer versions of FICO (FICO 9 and FICO XD), use rental payment information. Here’s how you can take advantage:
Hello, rent-reporting!
You can’t report your rent payments on your own. Property managers and landlords will do it for you. Unfortunately, only a few do. So, we suggest you check in with your manager or landlord to find out the real score. Unfortunately, there’s a likelihood your landlord isn’t reporting your rental payment. If that’s the case, you can turn to rent-reporting services, which will report your rent payments. If you take up this option, you’ll need to determine two things: One, to which credit bureau will the service report your payment? Two, which credit scores will take your rental payments into account? The Esusu mobile app, for instance, offers free rent-reporting services, but only to Equifax. Rent Reporters, on the other hand, reports rental payments to both Equifax and TransUnion (but for a one-time enrolment fee of $94.95, plus $9.95 monthly). PayYourRent, meanwhile, reports to all three credit bureaus, but with varying fees.
Worth the effort… and investment
Rent-reporting entails extra effort and investment. But it can definitely bump up credit scores. A USA Today article on rent payments boosting credit scores details how several rent-reporting pilots increased credit scores by double digits. Two pilots even bumped up renters’ credit scores by an average of 42 and 23 points, respectively. Just as important, the impact was immediate, as up to 24 months of rental history was reported.
An added benefit: building a credit history
Many still have little to no credit history. This is especially true among younger demographics. Post on solving the new-to credit problem notes that there are over 10 million adults under 25 that have no credit history, which means financial institutions consider them high-risk and subprime. Consequently, many of them find it difficult to secure credit. Most also have no choice but avail of expensive and potentially hazardous introductory credit products, like high-APR credit cards. Rent-reporting can best help this aforementioned demographic. Reveals how more 20-somethings rent rather than own, in part because they still lack capital to buy a house, and because they tend to prefer mobility. With rent-reporting, these young adults can start creating a credit history, and building up their credit score.
Why all these matter
As explained in ‘The Low Down on Credit Scores’ why credit score is important. Put simply, it is a major factor lenders consider when deciding whether to extend credit or not. The higher your score, the likelier you get approved. Ideally, you’d want to keep it upwards of 661, as that translates to a good rating for both FICO Score and VantageScore. Having said that, paying your bills on time and in full will is the most important factor to boost your credit score. As such, getting your timely rent payments on record will help you build your credit score. That’s why you should start taking advantage of this credit-boosting option.
Written by: Melissa Gibson
