Rent payments have traditionally not been included in credit reports. However, there is now a growing number of rent-reporting services aiming to change that. These services track users’ rent-paying habits and report them to the major credit bureaus – Equifax, Experian, and TransUnion. The goal is to help renters build credit and potentially boost their credit score. While this may sound appealing, it’s important to carefully evaluate these services before signing up.
According to Matt Schulz, chief credit analyst at LendingTree, one major detail to consider is whether your payment record will be reported to all three bureaus. This is crucial because lenders may use different credit bureaus to obtain information. It’s important to understand that you have more than one credit score, and you don’t know which bureau your lender will utilize. Therefore, if a rent-reporting service only reports to one bureau, it may not have as much value for renters.
Zillow Group, a popular real estate site, recently launched a new rent payment reporting feature. Renters who pay through the site can now opt-in to have their on-time rent payments reported to Experian, one of the major credit bureaus, at no cost to the renter or landlord. However, there are requirements for using this feature. The renter’s landlord must be a user of Zillow Rental Manager and agree to receive payments through the platform. While Zillow is the first real estate marketplace to report rental payment data to a credit bureau, there are already numerous rent-reporting services available for consumers.
There are various rent-reporting services that renters can consider, ranging from free options like Piñata to those with service or processing transaction fees like Rental Kharma. Additionally, some services cater specifically to landlords, offering rent reporting for tenants. Examples include ClearNow, Esusu, and PayYourRent. Landlords typically bear the cost of these programs, but there may be processing fees depending on the method of rent payment.
According to a 2022 fact sheet from the Office of the Comptroller of the Currency’s Project REACh, nearly 50 million Americans have no usable credit scores. Being “credit invisible” can significantly impact a person’s ability to qualify for loans and influence the terms and interest rates offered. However, when rent payments are included in credit reports, consumers see an average increase of almost 60 points to their credit score, as reported by TransUnion in 2021.
Rent-reporting services are not the only option for building credit. Other payment reporting programs, such as Experian Boost, StellarFi, and UltraFICO, focus on different types of payments. These programs allow users to build credit based on alternative metrics such as banking activity, streaming service payments, electric bills, and mobile phone plans.
Before signing up for a rent-reporting service on your own, it’s essential to consult with your landlord. Some landlords may be open to signing up as a benefit to their tenants. Offering a credit-building feature can help a landlord stand out in a competitive rental market. Building credit is a significant advantage, and landlords who facilitate this process might be more appealing to potential tenants.
When considering a rent-reporting service, it’s crucial to understand which credit bureau or bureaus the company sends reports to. Using a service that only sends rent payment reports to a single bureau may not be worthwhile. Different lenders may use different credit bureaus, and the benefits of using a rent-reporting tool may not materialize if the lender doesn’t utilize the same bureau.
Rent-reporting services can potentially provide renters with a valuable opportunity to build credit and improve their credit score. However, it’s essential to critically evaluate these services before signing up. Considerations such as reporting to all three credit bureaus, associated costs, and the potential impact on credit scores should be carefully weighed. Additionally, alternative payment reporting programs and the potential benefits for landlords should be taken into account. Ultimately, making an informed decision about utilizing a rent-reporting service can have a significant impact on an individual’s financial well-being.
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