Does Paying Rent Affect My Credit Score?

Quick: what’s your biggest monthly expense?

If you said, “rent,” you’re not alone.  According to the Bureau of Labor Statistics, the largest chunk of change Americans spend monthly goes to housing. The average annual cost is nearly $18,900 annually, or about $1,575 monthly.

Since rent is your biggest bill each month, you might be tempted to assume that payment counts toward your credit history. Shockingly, the truth is that most renters do not get credit for paying their rent.

According to FICO, only 0.3% of renters have their rent payment reported in their credit file. This means that compared to homeowners, renters can have a tougher time building strong credit. For example, the New York City Comptroller’s office found that credit scores tend to be lower in rent-heavy neighborhoods vs. communities that have more homeowners.

If you don’t think that sounds fair, you’re not alone. The good news is, if you want to get credit for your rent, you can — all you have to do is get your payment reported. Read on to find out how!

Why your credit score matters

A credit score is ultimately a shorthand way of telling creditors and lenders what kind of credit risk you are. The better track record you have in being financially responsible, the higher your score will be.

With good credit score, you’ll be more likely to get approved to rent an awesome apartment, get a car loan, open a credit card with a low interest rate, qualify for a cell phone plan without prepayment, and much more.

Here’s a quick credit score 101 to give you an idea of what this important number is comprised of:

• Your payment history, 35 percent: This speaks to whether or not you pay your bills on time and have any big payment issues in your past, like accounts in collections or bankruptcies.
• Your credit utilization, 30 percent: This is mainly about revolving credit cards, or those cards you only have to pay a minimum amount on a monthly basis. Using a lot of your available credit and only paying off a little each month can be a red flag.
• What types of accounts (also called tradelines) you have, 15 percent: It’s good on you if you have a healthy mix of types of credit, including revolving accounts (i.e. credit cards), installments loans (i.e. car loan) and open accounts, where a fixed amount is due each month (i.e. rent, utilities).
• New credit requests, 10 to 12 percent: This looks at how many new request for credit you initiate (called a “hard pull”). While having credit cards in the long run helps your credit score, short term it can bring it down – especially if you apply for a lot of new credit in a short amount of time.
• Credit history length, 5 to 7 percent: The longer you’ve had open accounts in good standing, the better.

How to start building credit

For most, there’s a Catch-22 involved with building a credit score strong enough to help improve your financial outlook: it takes credit to get credit.

So while building a very good or excellent credit score (740-850) is a worthy goal, it’s not always easy to get there – especially if you’re young and just starting out or if you’re working on building or repairing a low credit score (580 or less).

Luckily, there’s one way to boost your credit score without taking on debt: paying rent. And while it doesn’t automatically get factored into your credit score, it’s easy for you to take control and make sure it does.

Since 2014, the top three credit bureaus (Experian, TransUnion and Equifax) have allowed consistent, on-time rent payments to be counted as a positive on your credit history – but they must be reported by an accredited agency. Most of the time, landlords and property management companies don’t meet this bar, so rent isn’t reported.

The good news is, you can opt to have your rent reported through a certified rent reporting agency, so that those payments will be reflected on your credit report as a new tradeline with positive data.

If you’re wondering if it’s worth it to have your rent reported, the answer is an easy YES. In the handful of years that rent reporting has been an option for tenants, the results have been impressive.

At RentTrack, an accredited rent reporting agency since 2014, we’ve seen credit scores increase by 29+ points within 2-6 of months of reporting rent to credit bureaus. We’ve even seen renters’ scores increase by as much as 132+ points over two years!

In a recent survey that sampled tenants paying less than $2,000 a month in rent, the NYC Comptroller found that 76% of those tenants would see their credit scores improve if their rental payments were included.

These statistics all support the idea that getting credit for on-time rent payments not only affects your credit score, but can actually have a profound, positive impact.

How to report your rent to the credit bureaus

For the most part, property managers don’t share your information with the credit bureaus – although it’s worth checking with your landlord to see if yours does.

The best way to be sure your rent payments help boost your credit score is to use certified credit-reporting agency like RentTrack, to do the reporting. Even if your parents or someone else is helping out with your rent payments, as long as you’re the one with the account, you’ll be building your credit history.

Most rent reporting agencies give you more benefits beyond just making sure credit bureaus have your positive rent payment information. Some also help you make automatic, online payments to your landlord, track your credit score, provide credit protection, and so on. There are multiple ways to ensure your credit score trends upward, so just be sure you’re taking advantage of them all.

Paying rent is a given; getting credit with credit bureaus for it is not. Take steps today to make sure money you’d be spending anyways works for you as a smart, debt-free strategy to support building your credit history, and also your credit score.