If you mess up financially, or even make a tiny mistake, you can usually bet it will lower your credit score. However, if you’re doing everything you should and being financially responsible, that doesn’t always mean your credit score will increase.
It’s unfair, but building credit usually requires some knowledge of how credit scores are calculated and active and intentional financial decisions based on that knowledge. For example, being so responsible with your money that you don’t need a credit card won’t help your credit at all, but taking out a credit card you don’t need, using it for regular purchases, and paying it off each month will.
This is especially true for renters. Missing a rent payment, getting sent to collections, or getting evicted will almost certainly affect your credit. However, paying your rent on time likely won’t. That’s because your rent payments aren’t automatically reported to the major credit bureaus.
What is rent reporting?
Rent reporting is when your rental manager or a third party service reports your rent payments to credit bureaus for you. This third party service can be a rent reporting service that charges a monthly fee, or it can be a portal through which you pay your rent that offers rent reporting and may or may not charge a fee. Examples include Rent Reporters, RentTrack, PayYourRent, ClearNow, and ERentPayment.
If you have rent reporting, it means that the credit bureaus being reported to are tracking your on-time payments and taking them into consideration when they calculate your credit score. So, as long as you never pay late, rent reporting will increase your credit score.
Why you should sign up for rent reporting
Rent reporting is a great, easy way to build your credit score by simply paying your rent on time. While there are loans and credit cards specifically designed to help you build credit, it doesn’t hurt to add on-time rental payments into the mix as well.
This is a great option for people who don’t plan on buying a home anytime soon. It allows their rent payments to still have a positive impact on their credit profile. It’s also a way to build a little credit for people who don’t have any, although taking out a credit building loan or secured credit card will still be necessary to build a substantial amount of credit.
Another benefit of rent reporting is having an official record of your on-time rent payments. If you ever plan to rent again, this can be very beneficial. Landlords almost always want to see a good rental history, and relying on references from old landlords isn’t always the most credible way to vouch for a new renter. This is especially true if you have no or low credit and are having trouble finding a place that will rent to you — showing them a record of on-time rental payments will help convince them.
The drawbacks of rent reporting
There are no real drawbacks to rent reporting in terms of your credit score. Of course, if you miss a payment, it will impact your credit negatively. But late payments can be reported to the credit bureaus even if you aren’t registered for rent reporting.
The only real drawback to rent reporting is that is often costs money. There is a chance that your landlord is already signed up for rent reporting, so be sure to ask if they are before looking into services on your own.
If your rental management doesn’t already report your rent payments, you’ll have to look into third party services on your own. These often have a setup fee and then a monthly fee associated with them. Setup can range from a few dollars to $100, and monthly fees can range from nothing to around $10.
If you decide that rent reporting is right for you and find a service that you like, it’s worth talking to your landlord and seeing if they’ll include rent reporting in your rent. They may decide to offer it as an added bonus to their future renters.
How to sign up for rent reporting
Again, the first step is to ask your landlord if they’re already signed up for rent reporting. Your on-time rent payments could already be boosting your credit score without you even knowing it.
If you’re not signed up for rent reporting, it’s time to shop around. The most important thing to know is that every rent reporting service reports to different credit bureaus. Some may only report to smaller credit bureaus, while others may report to one of the major credit bureaus, and others still may report to all three major credit bureaus.
The problem with a rent reporting service that only reports to certain credit bureaus is that they may not be reporting to credit bureaus that your future lenders use. You have many different credit scores, and when you apply for a credit card, mortgage, or loan, the bank will typically look at one of those scores from one of those bureaus – whichever bureau they typically pull from. If your rent reporting service is reporting to credit bureau A, but all your future lenders pull your credit report from credit bureaus B and C, then the rent reporting service you paid for was essentially useless.
The three major credit bureaus are Experian, Equifax, and TransUnion. Ideally, you’ll want to find a rent reporting service that reports to all three. You should calculate the total annual cost, include setup and monthly fees, and find the most inexpensive option that reports to major credit bureaus. Be sure to ask the service what happens in the case of a dispute with your landlord.
Other perks to look for are things like free access to credit scores and recommendations for specific lenders and credit cards that pull credit reports from the credit bureaus that your service reports to.
