Does Rent to Own Furniture Build Credit?

Many individuals seek ways to acquire household items without a large upfront payment or a traditional credit check. Rent-to-own (RTO) furniture agreements are an appealing option. This article clarifies the relationship between rent-to-own arrangements and credit building, explaining how they function and their actual impact on credit reports.

Understanding Rent-to-Own Agreements

Rent-to-own agreements allow consumers to obtain furniture immediately by making regular rental payments over a specified period. Ownership of the furniture does not transfer until all scheduled payments are completed, or an early purchase option is exercised. This arrangement differs from traditional installment loans or retail financing, where ownership is typically transferred at the point of sale. RTO agreements often do not require a credit check for approval, making them accessible to consumers with limited or poor credit histories. However, the total cost of acquiring an item through a rent-to-own agreement can often be significantly higher than purchasing the same item outright or through conventional financing.

Credit Reporting and Rent-to-Own

Most rent-to-own companies do not routinely report positive payment activity to the three major credit bureaus: Experian, Equifax, and TransUnion. This is because RTO agreements are structured as rental contracts, not extensions of credit. Therefore, consistent, on-time rental payments typically do not appear on standard credit reports.

However, rent-to-own activity can appear on a credit report under specific circumstances. If payments become severely delinquent and the account is sent to collections, this negative information can be reported. Some RTO companies also report to specialized credit reporting agencies, though these reports usually do not directly influence FICO or VantageScore credit scores. It is worth noting that some lease-to-own companies do report payment history to major credit bureaus, offering a potential path for credit building through consistent payments.

How Rent-to-Own Can Affect Your Credit

Because positive payment history from most rent-to-own agreements is not regularly reported to major credit bureaus, these arrangements generally do not contribute to building a positive credit history or improving credit scores. The primary way an RTO agreement impacts credit is negatively. If an account defaults and is placed with a collection agency, this will likely be reported to major credit bureaus. A collection account can severely damage credit scores and may remain on a credit report for up to seven years from the date of the original delinquency, hindering future credit. Even if a specialized credit reporting agency receives RTO account information, this data typically does not factor into FICO or VantageScore credit scoring models.

Strategies for Building Credit

For individuals seeking to establish or improve their credit, several conventional methods are generally more effective.

• Secured credit cards require a cash deposit that acts as the credit limit. Responsible use, including on-time payments, is reported to credit bureaus and builds positive payment history.
• Credit builder loans involve funds held in an account while the borrower makes regular payments. The lender reports these payments, and funds become accessible once the loan is fully repaid.
• Becoming an authorized user on a trusted individual’s credit card account can also benefit credit, as the primary cardholder’s positive payment history may reflect on the authorized user’s report.
• Consistently paying all bills on time, including utilities and rent, can contribute to a positive financial reputation, especially if reported through specialized services or directly by some landlords.
• Regularly reviewing credit reports for accuracy is also a prudent step in managing credit health.