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While rent payments traditionally don't impact your credit score, more and more so-called rent reporting services are trying to change that.
These services track users' rent payment habits and report them to one or more of the major credit reporting agencies – Equifax, Experian and TransUnion – with the aim of helping renters build credit and potentially improve their credit scores.
However, these services do not all work the same way and some may be less valuable to renters. There's one important detail to consider before signing up, said Matt Schulz, chief credit analyst at LendingTree: Are your payment records going to all three bureaus?
“It's important for people to understand that there isn't just one credit score,” he said. “You just don’t know which office your lender will use to get your information.”
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How Rent Reporting Programs Work
This week's real estate site Zillow Group has introduced a new rent payment reporting feature. Tenants who pay through the site can now opt to have their on-time rent payments reported to Experian, one of the three major credit reporting agencies, at no cost to the tenant or landlord.
In order for a renter to use the Zillow feature, their landlord must be a Zillow Rental Manager user and have agreed to receive payments through the company.
“It is in line with our aim to provide access to construction loans for rental spaces. It’s a really positive step in that direction,” said Michael Sherman, vice president of leasing at Zillow Group.
While Zillow is the first real estate marketplace to report rent payment data to a credit reporting agency, it joins a variety of different rent reporting services already available to consumers.
There are many services renters can take advantage of, including some that are free, such as: B. Piñata, and others that incur service or processing fees, such as. B. Rental Kharma, which charges $8.95 per month after an initial setup fee of $75.
There are also services for landlords that offer rent reports for tenants, including ClearNow, Esusu, and PayYourRent. Typically, landlords cover the cost of these programs, but processing fees may apply depending on how you make your rent payments.
Rent reports can help the “credit invisibles.”
According to a 2022 fact sheet from the Office of the Comptroller of the Currency's Roundtable for Economic Access and Change (REACh) project, nearly 50 million Americans do not have usable credit.
Being “credit invisible” can impact your ability to qualify for a loan as well as the interest rates and terms you are granted when you apply for a loan.
When rent payments are factored into credit reports, consumers see an average improvement in their credit score of nearly 60 points, according to a 2021 TransUnion report.
Other payment reporting programs such as Experian Boost, StellarFi, and UltraFICO have similar goals to rental reporting services, but with different payment types. They allow users to build credit based on alternative metrics such as banking activity and payments for streaming services, utility bills and cell phone plans.
Talk to your landlord before signing up for a rent reporting service yourself. They may be willing to sign up as a benefit to their tenants.
While “people are creatures of habit and don't always embrace change,” a credit-building feature can help a landlord stand out in a competitive rental market, Schulz said.
“It would be a significant added value. “Building credit is a big deal, and if you’re someone who can help people build credit, you might be a little more interesting to them,” he added.
“Three credit reports are different reports”
Before signing up with a rental reporting service, it is important to understand which office or offices the company reports to. It may not be worth using a service that only sends rent payment reports to a single office.
“If a rental reporting service only shares your information with one of them [the three big bureaus]“And the lender from whom you get your auto loan uses a different credit reporting agency, the benefits that that tool could and should bring may not end up being realized,” Schulz said.
Ideally, the rental reporting company shares the data with Equifax, Experian and TransUnion.
“People hear about three credit bureaus, but they don't understand that your three credit reports are different reports and that different companies report to different credit bureaus,” Schulz said.