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Build credit by reporting your rent payments

reporting your rent payments

Credit Sesame discusses how you can build credit by reporting your rent payments to the credit bureaus.

Are you young and haven’t established a strong credit history yet? Got a low credit score you’d like to increase? There is one strategy that can accomplish both goals: Reporting your rent payments to the credit bureaus.

Take the time to understand why it’s smart to strengthen your credit rating, how rent payments can be used to build up your credit, and how to choose and use a rent-reporting service.

Why it’s important to work on building your credit rating

Building your credit early on in adulthood is a huge investment in your future finances, the experts agree.

“The better your credit score is, the more likely you’ll be to have credit applications approved when applying for housing, loans, or credit cards. You’ll also receive lower interest rates, which can make a huge difference in how quickly you’ll be able to pay off loans,” says Michael Cummins, a personal finance expert with Insurance Geek.

Carter Seuthe, CEO of Credit Summit, seconds those sentiments.

“Your credit score is essentially a reflection of your creditworthiness, or how likely you are to pay back borrowed funds based on your credit history and usage. This is important because it can determine whether or not you qualify for certain financing as well as the rates you are eligible for,” he says.

Problem is, it can be challenging to build a robust credit history when you are younger and before you are approved for a home loan, car loan, or other forms of financing. Ultimately, you want to be a good candidate for approval of these loans when you need them down the road. But how can you increase your odds of approval if you don’t have a solid credit history yet?

How to use rent payments to help build credit

One possible answer is to use rent payments you make to help establish good credit.

“Your rental is a contract to pay the owner every month to use their property. Fulfilling that contract is similar to paying a debt on time and can help establish your credit history,” says Dennis Shirshikov, a strategist for Awning.com and professor of economics and finance at City University of New York.

Simply paying your rent by itself will not help you build credit. However, reporting your rent payments through proper channels can achieve this goal.

“You can’t report rent payments yourself to the three credit bureaus – Experian, TransUnion, and Equifax. But enlisting a rent-reporting service can get your credit reports to reflect your rent payments fairly easily,” explains Sal Viti, a senior loan officer with Mann Mortgage in Las Vegas.

Indeed, you can submit your rent payments through a third-party service that will report them to the credit bureaus, in exchange for a fee.

Good candidates for using a rent-reporting service

Vashon Gonzales, chief operating officer at KAPED, a Los Angeles-based credit card issuing company, says “young adult renters with little to no credit who have a stable income and can afford the applicable fees are worthy candidates for using a rent-reporting service.”

Also, if you recently declared bankruptcy or have other negative marks on your credit report and cannot get access to new credit, reporting your rent is a good idea, per Shirshikov.

However, “you need to be incredibly reliable with your history of rent payments. That means never being late or short on paying the rent,” Seuthe adds.

Popular rent-reporting services and what they cost

Most rent-reporting services charge a fee for what they do.

“You will rarely if ever see a free rent-reporting service unless you find a not-for-profit one. They usually have a one-time setup fee between $29 and $69 – depending on if you want the last two years of rent reported or not. Also, you typically must pay a monthly fee of $4 to $9 for ongoing monthly reporting,” says Gonzales.

Also, be aware that not every credit bureau accepts every service.

Check out Credit Sesame’s rent-reporting service.

How to choose a rent-reporting service

To help select the right rent-reporting service for you, look closely at Internet reviews and research the company online carefully.

“Try to pick a company that has a proven track record of improving credit scores. Also, analyze your budget to see what you can afford based on what they charge,” recommends Seuthe.

Before enrolling with a rent-reporting service, check with your landlord first to learn if they already have a contract with any of these services that you can use, advises Cummins.

Keep your expectations realistic after using a rent-reporting service, too.

“It can take a while for the rent to be added to your credit report, and even longer for it to affect your credit score. Don’t expect to see results for at least six months after enrolling in a service,” says Shirshikov.

Alternative strategies

Instead of using a rent-reporting service, there are other ways you may be able to build credit efficiently.

“You can become an authorized user on someone else’s credit card and benefit from their good credit history,” advises Viti. “Also, you can get a secured credit card, which requires a deposit, with the deposit often serving as your credit limit.”

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Published October 26, 2022
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