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Using Your Rent to Build Credit: What to Know

We all know it’s important to build a solid credit history and excellent credit score. Those are critical for obtaining financing on big ticket items like a home or car. And the better they are, the more favorable the terms will be that are offered to you.

The credit score most lenders rely on is the FICO score. Also, the three major credit reporting agencies (Experian, Equifax and TransUnion) assign your VantageScore, a credit score developed to compete with FICO. Both types of credit scores are based on a combination of your payment history, debt utilization, credit history, inquiries and credit diversity. Having credit cards and paying them off each month is the easiest way to get a head start on a great score, because the majority of your score (65 percent for FICO; 51 percent for VantageScore) is based on making your payments on time and keeping your balances low.

No credit card

But what if you don’t have credit cards? Some consumers prefer to avoid credit cards, not wanting to fall into the revolving debt trap so many struggle with. Others have bad credit for whatever reason and are not eligible to obtain a credit card. Some (particularly younger) consumers have “thin” credit – the credit reporting agencies (CRAs) can’t assign a score to you because you don’t have enough data in your credit file. Still others simply want to be acknowledged in a tangible way for paying their biggest single recurring expense month after month, year after year.

For any of these consumers, building an excellent credit score is of paramount importance.

Paying your rent and building your credit history

Until recently, rent payments were not factored into your credit score. But in 2010, Experian acquired RentBureau, a specialty credit reporting agency that focused solely on rent payments. In 2011, Experian announced that rent data would appear on a consumer’s credit report. RentBureau allows property managers and other third parties to upload rent payment information – both positive and negative – directly to Experian.  TransUnion also now includes rent data on consumers’ credit history when the data is available. Rent appears as a “trade line expense” on your TransUnion credit report.

Reception has been mixed. Some advocates worry that tenants whose rent payments are reported will feel less inclined to exercise certain rights – such as handle a neglected repair and withhold a portion of the rent to cover the cost – for fear their rent will be reported as unpaid or late.

Most people, though, see great potential for reported rent to help people build credit. Rent is not considered “late” if paid within 30 days of the due date.

How to use your rent to build credit

You cannot report your rent to the credit reporting agencies yourself. Currently at least three third-party agencies collect and report rent data: Rental Kharma, William Paid and RentReporters.

William Paid is a rent payment app. The tenant chooses a payment method, submits payment, and William Paid transmits the payment to the landlord. Landlords are not required to participate, but may. For tenants who opt-in to reporting, payment data is reported to Experian. Tenants  can pay online via bank account or credit card, saving a trip to the post office or landlord’s location. Cash payments are accepted at 45,000 partner retail locations. Credit card payments, although not free, could be an attractive option for cardholders looking to maximize rewards. Roommates can each transmit their portion of the rent, and the other roommates can see who has paid and who has not. William Paid is free if you pay your rent via electronic funds transfer directly from your bank account. For cash or credit card payments, fees are up to 2.95% of your rent amount.

Rental Kharma is a simple and straightforward rent reporting service. It is currently free for tenants. After you sign up, you can verify your rent payments with bank statements, cancelled checks, or through your landlord/property manager. Landlords do not have to participate, but may. If they do, they need only verify payment each month. Payments are reported to TransUnion and can go back as far as two years. Rental Kharma does not handle the actual rent money or facilitate payment in any way.

Rent Reporters is a reporting agency. Upon registering, tenants can provide proof of up two years’ rent payments. Their website does not state how they verify ongoing rent payments, nor does it mention the credit reporting agency they report to. Rent Reporters is free for the first thirty days, and then costs $9.95 per month.

Keep in mind that rent payments are not currently factored into FICO scores, but will factor into the VantageScore calculated by TransUnion or Experian. Evictions and collections, however, will negatively impact your scores.

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