There are a variety of approaches to building credit. You can open secured credit cards or credit builder loans, reduce credit card debt, or become an authorized user on someone else’s card.
One tactic we often hear about is arranging for one’s rent to be reported on credit reports. This is known as “rent reporting.” How does it work? And does it make sense for you?
What Is Rent Reporting?
If you are younger, or are starting to build or rebuild credit, you might face a “thin file” problem. Rather than poor credit, you simply don’t have enough credit history, or enjoy a strong enough score.
Even if your score is decent, lenders (particularly for mortgages), complain that you don’t have “enough” or “long enough” credit history. You’d like to build up your score, as fast as possible.
One method to make this happen, is to arrange for your monthly rental payment to your landlord, to appear on your credit report each month. Currently, just 1% of rental payments report to the three major credit bureaus, although if this data is submitted to the bureaus, it can be taken into account, and have a positive impact on your credit score.
How Does Rent Reporting Work?
In order for your rental data to appear on a credit report, you’ll need to make use of a service which works with your landlord, and the credit bureaus, to ensure that your rental history appears on your credit reports. There are a number of such services available, including companies like RentTrack, Rental Kharma, Rent Reporters, ClearNow, PayYourRent, and ERentPayment.
Most of these companies function as a credit data furnisher, which allows them to report payment information to the credit bureaus each month. Many of them also act as payment services, such that you can pay your rent directly to them, and they will transmit the money to your landlord, and report it to some or all of the credit bureaus.
What Are The Best Rent Reporting Companies?
Of the companies mentioned above, our favorite options is RentTrack.RentTrack reports your payments to all three credit bureaus. You can pay your rent directly through RentTrack, and they’ll send the money to your landlords.
RentTrack offers several payment options, charging either a portion of the amount you pay in rent (just under 3% of your monthly rent payment), or a flat fee of $6.95 for direct transfers from your bank account. What’s also great about RentTrack is that your landlord does not have to be signed up for the service, making this much simpler to adopt. RentTrack often emphasizes that they can show your previous 24 months of payment history as well, but keep in mind that FICO does not typically take that information into account, in it’s algorithms.
Is Rent Reporting Worth It?
While the data varies widely, it is clear that reporting rental payments can help your credit score, especially if you have a thin file. A study from Experian found that rent reporting helped 100% of previously unscorable tenants to become scorable, while research from TransUnion found that 8 out of 10 consumers with subprime credit, saw their scores increase after just one month of reporting.
That brings us to a second question: Is rent reporting the most effective means of building credit? The answer is almost certainly no. As mentioned, only recent versions of FICO consider rental payments, so if you are applying for credit with a lender who doesn’t use such a version of FICO, your credit score won’t rise much. Also, rent reporting likely offers less benefits than secured credit cards, or credit builder loans, each of which has a significant impact on essentially every version of FICO.
For this reason, rent reporting can be a small part of your overall credit-building strategy. However, it is a far lower priority than removing negative items from your credit report (if any exist), and building credit through the use of credit cards and credit builder loans. We suggest focusing on those strategies, and, if it makes you feel more comfortable, using credit builder loans as an additional complement to your credit building plans.
