How Renting Can Increase Your Credit Score
Wondering if there’s any way your rent payments can start increasing your credit score? Here’s how you can get those payments reported so they give your score a boost.Image source: Getty Images.
When you’re a renter and you’re working on your credit, it’s frustrating to see all those monthly rent payments make zero impact on your credit score. For as long as credit scoring systems have been around, they’ve almost never taken rent into consideration.
Times have changed, though, and now it’s possible for renting to increase your credit score. Here’s how it works and when your rent can help your credit.
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When does rent increase your credit score?
There are two requirements for your rent to affect your credit score:
- Your rent payments must be reported to at least one credit bureau.
- The credit scoring system must use rent for scoring purposes.
For the first requirement, either your landlord or a rent payment service that you use needs to report your rent to a credit bureau every month. You can’t do this yourself, for obvious reasons. Equifax, Experian, and TransUnion don’t let consumers write in and say “I paid my rent this month!”
The second requirement is where things get more complicated. There are two major credit scoring systems -- FICO, which is the most popular by a wide margin, and VantageScore. Both have been updated several times over the years.
VantageScore has used reported rent payments for scoring purposes since its first iteration. FICO, on the other hand, only began doing this with its most recent FICO® Score 9 and FICO® Score XD models. But the most popular option is still the FICO® Score 8.
What this means is that rent can increase your credit score, but it may not increase the score that a third party looks at when running a credit check on you. This will likely change as FICO® Score 9 supplants FICO® Score 8.
How much can renting boost your credit score?
Rent payments can help you build a positive payment history, and fortunately, payment history is the most important factor for your credit score. Under the FICO scoring model, payment history counts for 35%.
Consumers with thin credit files will benefit the most. If you haven’t built much payment history yet from either credit card or installment loan payments, then getting your rent reported could make a big difference in your score. And the longer this goes on, the more your score will improve.
On the other hand, if you already have a good payment history, then your rent will be less helpful. It could still boost your credit score, but you shouldn’t expect dramatic results.
How to get rent reported to the credit bureaus
Start by contacting your landlord or property management company to ask if they already report your rent payments to one or more credit bureaus. Hopefully, they say yes, and your work here is done.
If your landlord or property management company require that you use a rent payment service, that service may report your payments or give you the option to have them reported. For example, my landlord uses PayYourRent, and after I submit a payment there’s a box I can check if I want PayYourRent to report my payment to the credit bureaus.
Finally, if neither of the above are true, you can always sign up with a rent payment service on your own. Some of these services require your landlord to sign up, but you can also find options that don’t, such as RentTrack. Here’s how these services usually work if your landlord isn’t registered:
- You pay the rental payment service.
- The rental payment service sends a check on your behalf to your landlord.
- The rental payment service reports your payment to at least one credit bureau.
Fees for this type of service vary, so make sure you shop around. You should also look for a service that will notify all three credit bureaus of your payments.
Renting your way to better credit
If you don’t have much payment history yet, your rent can get you started there, and there are several ways to have those payments reported to the credit bureaus.
It’s still smart to build your payment history through other methods, as well, since not every type of credit score will increase from rent payments. That’s why I’d recommend getting a good credit card you can use regularly. If you need to, start with one of the secured credit cards focused on building credit.
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