In order to build credit, you’ll need to establish a history of borrowing money and making on-time payments. Paying rent, however, doesn’t traditionally help you build credit. The reason? rent information typically doesn’t normally show up on your credit report.
Luckily, this doesn’t mean you can’t use your rent payments to build credit. Some landlords and third-party reporting services can help you do this by reporting your rent payments to the credit bureaus on your behalf.
Do Rent Payments Appear On Credit Reports?
Your credit report is a detailed account of your credit history. This includes any and all credit accounts you have and had opened, the amount of debt you owe, as well as history of making payments.
The credit reporting bureaus(Experian, Equifax, and TransUnion) only update your credit report whenever they receive credit information, such as when you make a credit card payment.
Landlords don’t usually report rent payments to the credit bureaus. As such, they won’t appear on your credit report and, by extension, won’t reflect on your credit score. In other words, paying rent won’t help you build credit.
How To Report Your Rent Payments
Unfortunately, you can’t report your rent payments yourself. But you can always ask your landlord to do so. That being said, landlords will typically need to pay more than $100 a year for this, which is why not many reports to the credit bureaus.
This is where rent-reporting services come in as an alternative. Rent-reporting companies, such as Rent Reporters and Rental Kharma, as their name implies, report your rent payments to the credit bureaus on your behalf.
While they do charge for their services, rent-reporting companies are much cheaper, starting at $50 per year. The biggest benefit, you’ll have more control over the process. And, most importantly, you can use your rent payments to build credit.
How Paying Rent Can Help You Build Credit
“Credit” generally refers to your credit score- a three-digit number that represents the likelihood you’ll repay a debt on time. The higher your credit score, the more “creditworthy” you look to banks and other lenders.
To calculate your credit score, credit-scoring companies like FICO look at key information in your credit report. The most important is information pertaining to your payment history, which is why it accounts for 35% of your score.
On-time payments in your credit report reflect very positively on your credit score. By including non-traditional payments, such as rent payments, you’re effectively building a positive payment history and, by extension, positive credit.
Can Late Rent Payments Hurt Your Credit?
Late payments can potentially hurt your credit. While landlords don’t typically report on-time payments to the credit bureaus, they do late payments. When this happens, a negative mark will show up on your credit report, which will then ding your credit score.
A single late payment on your credit report can lower your credit score by as much as a hundred points. What’s worse is the fact that a landlord may choose to turn your debt over to a collections agency.
An account in collections is one of the worst items you can have on your credit history. Not only does this particular information lower your score, but it will continue to do so for up to 7 years- regardless if you settle the debt or not.
The Bottom Line
Simply paying rent won’t help you build credit. This is because landlords don’t usually report rent payments to the credit bureaus. But by asking your landlord or by subscribing to a rent-reporting service, paying rent can build credit.
Do keep in mind, however, that there are other ways to build credit aside from reporting your rent payments. One of these is by removing negative information from your credit report, also known as credit repair.
Call us at 888-799-7267 to schedule a Free Credit Consultation.
