You may not realize it, but if you rent a house or apartment, some credit agencies count your rental payment history in their credit score calculations.
That wasn’t always the case, and it represents a huge change in the data that go into personal credit scores of the almost 95 million U.S. renters identified by the National Multifamily Housing Council (about 35% of all U.S. households). Previously, landlords and property management companies may have delivered negative rental payment data to credit score agencies. But since they weren't providing positive rental payments, those payments weren't being plugged in to credit score calculations, and those payments weren't boosting your credit score.
For example, credit rating giant Experian began including positive rental payment histories in its credit score ratings in 2010. TransUnion also figures positive rental payments into its credit calculations (look for it under “tradeline expense” on your credit report.)
That could be a game-changer for consumers, especially younger ones in their 20s just starting to build a good credit profile. Previously, such an option wasn’t available so a tenant's positive rental history wouldn't help enhance a credit rating.
What should you know about how your rental payments affect your credit score – and what can you do to leverage a good payment history to maximize it?
Know the Score
Experian includes positive rental-payment data in its credit reports through its Experian RentBureau division.This allows consumers to establish or build a credit history through timely rental payments, says Emily Christiansen, director of Experian’s RentBureau. “Paid-as-agreed rental payment information is included as a tradeline on a consumer’s Experian credit report and may be incorporated into certain credit scores, such as VantageScore and Experian’s PLUS Score.”
The addition of positive rental payment data in Experian credit reports can be a tremendous benefit to anyone who rents, especially non-credit-active, cash-based consumers, Christiansen adds.
Be Sure Your Rent Payments Count
Not all landlords report rental payment data to credit agencies so it’s best to check whether yours does. “If consumers currently rent or are considering renting, they should ask their property management company if it reports rental payment data to Experian RentBureau,” says Christiansen. “In the event that a property management company reports historical data, the historical positive rental payment data may be included on Experian consumer credit reports.”
She adds that if consumers rent from an individual landlord or property management company that does not report data, they can sign up through a rent payment service working with Experian RentBureau. “These services allow for the payment of rent electronically and enable consumers to opt-in to reporting rental payment data to Experian,” Christiansen adds
Using Rent to Build Your History
According to John Heath, directing attorney at Lexington Law, a nationwide legal firm that specializes in helping consumers with credit and debt issues, there’s no secret about how rental payments can build credit. Just make your payments on time, every time. Agencies that track rents pay attention to your history, Heath says. “This can be a really good thing if you have a positive rental payment history because it can maintain or help raise your credit score,” he notes.
“The most important thing a renter can do to improve their score is to pay their rent in a timely manner,” Heath explains. “But if the renter is late on their rent (for a period of 30 days or more) for any reason (including legitimate reasons i.e. withholding rent because the rental does not have water or heat) it could result in a reduction in the renter’s credit score.”
How Much Rent Payments Affect Your Credit
The impact of rental payments depends on your situation, Heath explains. “Approximately 35% of your credit score is based upon your payment history,” he says. “If your rental history is a large part of your payment history, it can have a significant effect on your credit score. Conversely, if your rental payment is a smaller part of your payment history, it will have a lesser impact on your credit score.”
Heath notes that the credit visibility of rent affects the leverage tenants historically have had over landlords who didn't maintain their property. Broken appliances, bug infestations or poor snow-removal services could make renters withhold payment until the problem was fixed. If a tenant withholds rent now – and that information is passed along to a TransUnion or Experian – that renter could be penalized with a lower credit score.
If that happens to you, make sure to document the problem, and why you withheld the rent until the situation was corrected. Send the information in writing to the credit rating agencies, especially Experian and TransUnion, so it appears on your credit report. There, lenders can see your explanation and document it when they make credit and lending decisions.
The Bottom Line
With monthly rental payments a core ingredient in some credit scores, renters should take steps to use those expenditures to build a stronger credit score.