How to Use Rent Payments to Boost Your Credit Score
On-time mortgage payments are one way to help build good credit. But if you’re not a homeowner, there’s a little-known workaround.
Black folks often face a host of credit challenges stemming from lower incomes, discrimination, a lack of knowledge about credit scoring and more. But one additional factor — the low rate of Black homeownership in America — has also meant diminished credit scores.
Currently, nearly 6 out of 10 of us rent, with just 43 percent of African Americans owning their own residences, according to a 2022 report from the National Association of Realtors.
The result: People with mortgages get the benefit of having their housing payments reported to the credit bureaus. But for other individuals, what is often their largest monthly expense — their housing cost as renters — is typically excluded from their credit profile.
Thankfully, that’s changing in many ways, including the growth of numerous new services that let you get credit for making on-time rent payments.
Here are some simple ways to report your rental history and get the credit score you deserve.
Why don’t credit bureaus factor rent payments into your credit score?
Though over a third of the population rents, rental payments are still considered alternative credit data by the three major credit bureaus. As such, your history of handing over your rent check on time isn’t likely to be reported by your landlord.
But Equifax, Experian and TransUnion, the top three credit reporting agencies, will include your rental history in your credit report if they receive the information. So, you want them to have that information; you don’t want to fly under the radar of the major credit bureaus when you have a great track record of paying your rent on time.
Why are on-time rent payments a good way to build credit?
Rent payments can help build credit the same way paying your mortgage does. Though you’re not paying a debt per se, you can still establish a pattern of making regular, on-time payments, which demonstrates reliability to potential creditors. And since you have to pay for housing anywhere you live, you might as well get credit for your good habits!
How can you report rent payments to credit bureaus?
Because rent is a form of alternative data, there’s no lender that will report your payments. Instead, you or your landlord will have to use a credit reporting service to ensure the bureaus receive the right information. A number of businesses on the market provide this service, though each varies in price and features. A few notable companies include:
- Experian RentBureau
- Rental Kharma
- Rent Reporters
- Rock the Score
Bear in mind that some services require landlords to report or verify payments instead of renters. A few even act as go-betweens; you just send your rent to the service, which then forwards it to your landlord. They don’t all report to all three bureaus though, so you’ll want to research each option thoroughly.
Using credit cards to establish your rental history
Another way to ensure your rent payments count is to pay with a credit card. Though your rent payments themselves won’t show up as a separate line on your credit report, you’ll still establish a positive credit history. Plus, if you use a rewards card, you can accelerate your points or cash back.
But not all landlords accept credit cards and some charge hefty fees for the privilege. If that’s the case, you may want to use a third-party service like Plastiq that charges your card and cuts a check to your landlord. You can also use a rent-focused credit card like Bilt Mastercard that offers similar accommodations through its app.
If you go this route, just ensure you pay this amount in full each month. Allowing the balance to carry over month after month can lead to interest charges, debt accrual and a precarious financial situation that can chip away at the very credit score you’re trying to improve.
Using rent payments to encourage economic inclusion
Typically, the only way to build credit is to use credit, such as applying for a credit card or becoming an authorized user on a family member’s account. But people of color often don’t participate in the economy in ways that build credit-based payment histories.
For instance, Black people are less likely to use credit cards and banking services and more likely to take out payday loans. We’re also less likely to own a home or pay a mortgage. As a result, Black Americans are disproportionately left out of home payment-based credit reporting.
But reporting rent payments can change this narrative, giving you your due and leveling the credit field. And because rent reporting stands to benefit those with low or no credit scores to a greater degree, Black Americans have the most to gain.
Moreover, including rental histories in credit reports may help knock down the credit-related barriers that prevent Black families from buying a home. By adding your on-time rent payments to the mix, you increase your odds of getting a mortgage and building wealth to pass down through future generations.