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Credit is king in America. A credit score determines eligibility for even the most basic necessities of life, including housing. Having a healthy credit score requires years of credit, combined with factors like positive payment history and low credit utilization.
But not everyone has a score. The Consumer Financial Protection Bureau (CFPB) estimates that about 26 million Americans are credit invisible, meaning they have no credit score at all. There are multiple factors contributing to this trend, including insufficient credit history.
Getting a credit score established can be tricky, though. If you need a history of credit to get approved for credit, how do you even start? There are some tricks out there to make it easier. One is to start with a secured credit card. Another is getting rent payments added to your credit report.
How Rent Payment Reporting Services Work
You can’t report rental payments to credit bureaus yourself, but all three of the major bureaus will accept your rental payment data from a third-party servicer. Experian, for example, receives rent payment datathrough Experian RentBureau, and updates its database every 24 hours from property management companies and electronic rent payment services across the country.
Landlords can report payments to third-party platforms for the reporting. This additional service will submit your rent payments to credit bureaus, oftentimes (but not always) for a fee. Some cost as low as $6.95 per month; others charge annual fees upwards of $95-plus. The services are usually rent payment platforms with the additional option to report your payments to your credit report.
According to Experian, these payment services work with its RentBureau service to report rent payments:
- RentTrack
- PayLease
- PayYourRent
- ClearNow
- eRentPayment
- Rentler
- Cozy
Other rent payment platforms include:
- Rental Kharma
- Rent Reporters
- eRentPayment
While considering the high interest rates consumers with poor creditare charged, this monthly fee can far outweigh the thousands paid in interest on other financial products because of poor credit. If you are in a situation where you only qualify for subprime lending, be sure to shop around for a rent-reporting service that has a monthly fee that will fit into your monthly budget.
How to Enroll
To enroll in a rent-reporting service, you can either sign up through the payment system with your property management company if it reports this data, or choose a platform on on your own. These services are available online and can be enrolled in as little as one day. You’ll need to provide information like a copy of your lease for verification, your address, birth date and more.
Some services have the option to report past rental payments to the credit bureau. If you already have good payment history and want to utilize this option, be sure to specify so during the enrollment process.
While picking a servicer, be aware of what credit bureau it will report payments to. Rental Kharma, for example, only reports data to TransUnion. Not every service reports to every credit bureau.
Things To Keep In Mind
While reporting rent on your credit report sounds like a good idea — for every payment on time, you can strengthen your score — digging into how it actually pans out reveals some interesting caveats.
For example, a string of reddit posts discussing consequences of reporting rent payments reveal exactly how Experian reports them on a credit report. Reddit user flymd claims his credit score dropped 20 points one month after opting to report his rent payments to the bureau.
“The only thing different I could find on my report was that it was now categorizing my rental payments (under PayLease) as a brand new “loan account” with an age of <1 month, which has significantly altered my average age of accounts and hit my score,” flymd writes.
In a statement provided to Forbes, TransUnion explained exactly how rental payment histories are recorded on credit reports.
“Rental payments are reported as portfolio type Open and account type Rental Agreement.. They show up in the tradelines section among all the other tradeline types (installments, credit cards, etc). It will show up as a new account if it was not previously reported but may not be a new loan as rental agreements could have been open previously and are just now being reported on.”
So why the drop in score? Any time a new tradeline is opened, a credit score may drop a few points. For example, TransUnion’s websitestates new credit accounts determine 5% of a total credit score; for Experian, that’s 10%. Consumers should remember that a credit score routinely fluctuates, and the initial drop is likely to be recovered in a few weeks time, considering responsible credit use an on-time payments are practiced — and that the quest for a perfect credit scoreisn’t, well, perfect.
Emily Christiansen, director of Experian Rent Bureau, adds that a diversified credit report will benefit consumers in the long run, regardless of the initial dip.
“Those who see a temporary dip in credit scores may still benefit from the addition of paid-as-agreed rental payment data to their file by increasing the completeness and diversity of their credit profiles,” Christiansen says.
Another small nuance: If you are subleasing from a friend, as in paying their portion of a lease each month for a room they no longer occupy, you likely will not qualify for rent reporting through the servicing platforms. You can only qualify if your name is on the lease and you are making the payments yourself each month.
Who Can Benefit The Most From This
For people who never miss a rent payment, adding it to a credit report might seem like a great idea at first. But in reality, people who have little to no credit, or a rock-bottom score, will benefit the most from reporting their payment history to credit bureaus.
TransUnion states that out of a sample of 300,000 residents, 8% of the population with no credit score achieved an average score of 635 after reporting their rental payments on time. Additionally, 23% of the population who were in the subprime and near prime credit score range saw a gain of 13 points and 4 points, respectively.
If you’re someone who doesn’t consistently pay your rent on time, adding this reporting to your credit score could be of risk. TransUnion states that negative rental payment data can be reported immediately to the bureau, whereas other negative payment data usually isn’t reported for 30-90 days. Proceed with caution.
Overall, the lower your score is, the bigger the benefit that comes with reporting rental payments to credit bureaus — as long as you pay your rent on time.
