Can Renting an Apartment Build Credit?

Many renters wonder if consistent rent payments build credit. While rent is a significant monthly expense, its impact on credit scores isn’t always automatic. Understanding how credit bureaus operate and the methods available for reporting rent can help renters leverage on-time payments to establish or improve their credit.

Rent Payments and Credit Reporting Defaults

Rent payments generally do not automatically appear on credit reports. Traditional credit bureaus primarily focus on debt obligations like mortgages, auto loans, student loans, and credit cards. Landlords are not lenders and are not legally obligated to report positive payment history to the major credit bureaus: Equifax, Experian, and TransUnion.

Negative rent-related events can impact a credit report. If a tenant fails to make rent payments and the landlord sends the unpaid debt to a collection agency, this information appears. Evictions or significant lease breaches can also be reported, potentially remaining on a credit report for up to seven years. These negative marks can significantly lower a credit score, making it challenging to secure future housing or other forms of credit.

Reporting Rent Payments to Credit Bureaus

For rent payments to influence credit scores, they must be actively reported. One common method uses third-party rent reporting services that act as intermediaries. Tenants enroll with these services, which collect and verify monthly rent payments. Some services may require linking bank accounts or providing landlord contact information and a lease copy.

Another way rent can be reported is through landlord-initiated programs. Some property management companies and landlords partner with credit reporting agencies to report tenant payment histories. These programs often allow landlords to report on-time payments, sometimes absorbing reporting fees. Both third-party services and landlord programs aim to convert a tenant’s largest recurring expense into a credit-building tool.

Rent reporting services vary in operations and fees. Many charge a monthly fee, typically $10-$15, and some include setup or one-time fees. Confirm which credit bureaus a service reports to, as some report to all three, while others may only report to one or two. Some services can even report up to 24 months or more of past rent payments, potentially boosting a credit profile.

Effect of Reported Rent on Credit Scores

Consistently reported on-time rent payments can positively influence credit scores, particularly for individuals with limited or no credit history. Payment history is the most significant factor in calculating credit scores, accounting for about 35% of a FICO Score. Adding a record of regular, substantial payments like rent can demonstrate financial responsibility.

Newer credit scoring models incorporate rent payment data. FICO Score 9 and VantageScore are two prominent models that consider reported rent payments. VantageScore was the first to incorporate this data. While many lenders still use older FICO models that may not consider rent, the inclusion of this data in newer versions means its impact is growing.

Reported rent payments positively affect credit scores through several factors. Beyond payment history, they contribute to a longer credit history, especially if past payments are reported. They also diversify a credit mix. Consistent on-time payments can increase a credit score, potentially by a few to dozens of points. However, late or missed rent payments can negatively affect the score, just like other delinquent accounts.