Unlike making a mortgage payment each month, paying your rent regularly doesn’t automatically impact your credit score. While it may seem unfair that your largest expense and one of your biggest responsibilities doesn’t help your credit at all, things are starting to sway in favor of tenants.
There are a few tactics you can use to actually get your rent to count towards your credit score, thanks to some new technology and services available on the market. Find out everything you need to know about how you can potentially build your credit with your rent payments, plus how other rent-related decisions can negatively impact your score.
How to Use Rent to Boost Your Credit
In the past, rental payments didn’t show up on credit reports at all. Today, however, there are several new services you and your landlord can use to help count all of those on-time payments towards your credit score. While the credit bureaus now accept rental information, this information is not automatically reported to them by landlords. It is possible, however, to find a landlord who does this or to take matters into your own hands with a third party service.
Landlord-Centric Rental Reporting Services
There are two primary types of rental reporting services. The first is marketed directly to landlords as a way to stand apart from competing properties by offering rental credit reporting. It’s also meant to encourage on-time payments if tenants know their rent is being reported each and every month.
You’re likely to find this service among larger property management companies than individual owner-landlords. TransUnion, for example, offers a service called ResidentCredit that integrates both online payments and credit reporting as a comprehensive solution for both landlords and tenants.
The downside is that the rent is only reported to TransUnion, not the other two credit bureaus. Most future lenders check all three reports, so your score won’t be consistent across the board if your landlord just uses ResidentCredit.
Experian and Equifax offer a similar service, except that they both partner with multiple third-party rent payment services that allow tenants to opt into the rental reporting service. The benefit with this service is that your payment is reported to all three credit bureaus.
Tenant-Centric Rental Reporting Services
If your landlord or property management company doesn’t currently use an integrated payment and reporting service, you can opt to sign up for your own rental reporting. There are several companies that verify your rent directly with your landlord then report the information to the credit bureaus.
Most services offer the option to sign up to have future rental payments reported. But you can also get a few years of past rental payments retroactively applied to your credit report so that you can take advantage of an even longer credit history.
You do have to pay for these services, either as a one-time fee for past reporting or a monthly fee for ongoing reporting. As you evaluate your choices, check to see which credit bureaus are included. Some companies only report to one or two, so you want to make sure you’re getting the best value for the cost involved.
Pay with a Credit Card
A final, if a somewhat unconventional option, to build your credit score using your rent is to make your payment with a credit card each month, then pay off the balance in full before your next statement due date. Most landlords don’t directly accept credit cards, but there are several third-party services out there that help you do this.
These companies typically work by accepting your payment via your credit card, then pay your landlord by check or ACH. You’ll have to pay a fee, of course, which is usually a percentage of your rent amount. For example, if the company charges a 2.5% fee and your rent is $1,500 each month, the transaction will cost you $37.50. That may seem like a lot, but it is one way to get your rent to help your credit.
Why Your Credit Score is Important Before Renting
While it’s smart to strategize ways to get your rental payments to improve your credit once you’re in your new place, your credit is also important to the rental process before you even move in.
That’s because landlords use background checks – including a credit check – to assess your application. They can view both your credit report and your score at the time of the application, allowing them to see information such as:
- Credit accounts and payment history
- Public record filings
- Credit report inquiries
Depending on the price of the apartment you want to rent and other factors, different landlords will look for different credit thresholds. Being current on all of your accounts is one of the most important factors to a landlord. Smaller digressions such as a few late payments are less likely to hurt your chances of approval.
Other Components of Tenant Screening
In addition to running a credit check, landlords also review any potential criminal history, past judgments, and your current income. All of this information helps assess both your level of responsibility and your financial ability to pay the rent, particularly when compared to your debt obligations revealed on your credit report.
Renting an Apartment with No Credit
There are a few strategies you can employ to rent an apartment even if you haven’t had a chance to establish a credit history yet. You’re more likely to find success with a landlord-owner than a property manager because they don’t have a corporate protocol to follow. Plus, you can appeal to them emotionally if you make a solid connection during the showing or provide reference letters.
The power of money is also compelling when you don’t have a lengthy credit history but want to rent an apartment. For example, you can offer to pay an extra month of security deposit or show bank statements to prove you have the savings in place to buffer your budget. If necessary, most landlords also allow for a co-signer to bolster your credit and income profiles.
3 Ways Renting an Apartment Can Hurt Your Credit
Once you’re in your apartment, you’ll ideally be able to take advantage of a service that helps to build your credit as you make your rent payments on time each month. However, take care not to inadvertently hurt your credit score with a few rent-related mistakes. Here are three major missteps to avoid.
Excessive Rental Inquiries
When you’re apartment hunting, potential landlords and property management companies pull your credit report as part of the application process. Each of these inquiries shows up on your credit report and can knock your score down a few points. It’s not a huge deal if you quickly find the perfect place. But if you end up applying to multiple rental properties, your score could end up dropping fast.
Be strategic about where you apply and when. You can even check your credit score in advance on your own, then talk to a potential landlord upfront about their specific credit requirements. This saves you both time and money, and for you, it could also save your credit score.
Breaking a Your Lease
Breaking your lease early doesn’t automatically hurt your credit score, but it can lead to a trickle-down effect if you’re not careful. The biggest consideration is to research what type of fee you’ll owe when you break your lease, which should be disclosed in the original paperwork you signed.
In the worst-case scenario, you could be required to pay all of your remaining rent. This can be a major financial burden for many people, leading them to skip out on making those payments completely. If you do this, however, your debt can be sent to collections and your landlord could even take you to court for the money owed. All of this appears on your credit report and not only damages your score but also hurts your chances of getting approved for a new apartment in the future.
If you can’t pay your rent and get evicted from your apartment, your credit could suffer depending on the steps taken by your former landlord. The most serious result is if your landlord goes through the courts for the eviction process and repayment of back rent. This becomes public record and likely shows up on your credit report as a judgment, staying there for as long as seven years.
Once you pay off the judgment, it will be listed as satisfied but is still visible during future credit checks. Still, a paid judgment is still better than an unpaid judgment.
The Bottom Line
Renting an apartment and building your credit score may not seem related at first, but they’re actually intertwined in many ways. From using your credit to position yourself as a strong applicant to using a service to count your rent towards your credit score, there are many ways you can leverage your rental to positively impact your credit.