There are a variety of approaches to building credit. You can open secured credit cards and credit builder loans, reduce credit card debt, or be added as an authorized user on someone else’s card. One tactic we are frequently asked about, is arranging for one’s rent to be reported on a credit report, also known as “rent reporting.” Will it help you (or your client’s, if you are a real estate, mortgage, or lending professional)? Our thoughts below.

What Is Rent Reporting?

Many of you (or your clients), who are younger, or just starting to build or rebuild credit, face a “thin file” problem. Rather than poor credit, you simply don’t have enough credit history, enjoy a strong credit score, or, 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 (while many older versions of FICO don’t take account of rental data, the more recent FICO 9 and FICO XD both do). While these accounts are not treated in quite the same way as a mortgage or auto loan, they can have a positive impact on your credit score.

How Does Rent Reporting Work?

In order for your (or your client’s) 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 function 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 are RentTrack and ERentPayment. Each of these companies reports rental payment data to all three credit bureaus, which is important, because lots of major lenders (including most auto and mortgage lenders), check your credit with all three bureaus. If only 1 or 2 of your scores are higher due to rent reporting (as would be the case with most of the other companies mentioned above), you won’t enjoy as much of the savings and expanded credit options, as you would like to.

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.

ERentPayment is another popular option, which also reports to the three credit bureaus. With ERentPayment, you’ll typically pay $3.00 per transaction, for the processing of electronic payments. Perhaps the biggest issue with ERentPayment is that your landlord has to sign up with the service, and many landlords might find this inconvenient, given that they aren’t particularly concerned with you or your client’s credit success.

Is Rent Reporting Worth It?

While the data varies widely, it is clear that reporting of rental payments on your credit report, 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 or VantageScore.

For this reason, we think that while rent reporting can be a small part of your overall credit-building strategy, 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, complimentary strategy.