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Does Paying Rent Build Credit? Can I Build Credit with Rent?

Paying rent every month doesn’t mean it will help your credit score. It may not even affect it at all. Worse yet, it can even hurt it. Most landlords don’t report rent to the credit bureaus and if they do, it’s not to all three bureaus.

How do you build credit if your rent doesn’t report?

In a Nutshell: Rent May or May Not Help Build Your Credit Score

Don’t fall for the fallacy that rent helps your credit score. It may not affect it at all. If it does, one of the following things may occur:

Rather than worrying about your rent payments showing up on your credit report, consider a credit builder service. The free service helps you build thick credit and ‘good’ credit if you make your payments on time.

Check out why reported rent payments may not be the help you thought they would be.

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Rent Payments May Not Affect Your Credit Score the Way You Think

You pay rent every month so you assume your landlord reports it to the credit bureaus. In reality, most don’t.

All that hard-earned money you pay each month in the hopes that it will help you build a good credit history and credit score does nothing most of the time. A majority of landlords don’t report rent to the credit bureaus for a few reasons:

Just because landlords normally don’t report rent to the credit bureaus doesn’t mean you can pay your rent late, though. Here’s the thing – if you miss your payments and the landlord has to involve a collection agency, the agency likely reports to the credit bureaus. That negative information will hurt your credit score in ways that are hard to overcome.

While you have to keep making your rent payments on time, there are other ways that you can build credit. Most importantly, though, keep those rent payments going. Even if they aren’t reported to the bureaus, a future lender may ask your landlord for a Verification of Rent. This confirms whether you’ve made your rent payments on time or late throughout the last 12 – 24 months.

How Do Reported Rent Payments Show Up on a Credit Report?

Assuming you are among the rare few that have a landlord that reports your rent, it shows up on a credit report like an installment loan (such as a car loan). In other words, it shows if you make your payments on time or if you have a 30, 60, or 90-day late payments.

Traditional credit score models didn’t use rent in their credit score calculations. If your rent was reported, it was just to show a timely payment history, which could work favorably for you if you’re looking for a mortgage or even to rent another property.

Today, though, FICO 9 and VantageScore both incorporate rent payments in their scoring algorithm. Rent payments can now help you build your credit score up, or at least give you a ‘thicker’ credit file that allows you to have a credit score at all.

Keep in mind, not all lenders, banks or even landlords use the latest scoring models, so it’s hit or miss whether reporting your rent will work.

You Can Pay to Have Your Rent Payment Reported — But is It Worth It?

There are third-party services that promise to report your rent payments to the credit bureaus. But they are expensive. They charge registration fees of $100 or more. Then there are the monthly fees if you want them to keep reporting. Do you want past rental payments reported? That’s another fee.

Before you know it, you’ve paid almost the equivalent of your rent payment just to have it show up on your credit reports. However, they only report to one or two bureaus — not even all three!

If you pay your rent late, now you’ve just paid to have your rent payments damage your credit score. In most cases, it’s not worth it to pay for the third-party rent reporting services.

Credit Builders Can Help You Build Your Credit Score for Free

Why pay for a service that may or may not help you with your financial needs? If the landlord or rental service reports to only one bureau, how do you know it’s the bureau your future lender will use? It’s a gamble — and an expensive one at that.

Instead, use a free credit builder. The right credit builder service will report to all three credit bureaus, reporting your timely payments (if you make them on time). These on-time payments help future creditors see your financial worthiness and responsibility and it’s free.

Credit builder services do just that — build your credit. You need a ‘thick file’ to have a credit score. If the credit bureaus have nothing to score, you end up without a score. A credit builder loan helps you build that credit without really taking a loan — instead, you have a secured loan that the service uses to report timely payments, building up your credit score.

How to Find Out if Your Landlord Reports Rent Payments

Do you even know if your landlord reports rent payments? The easiest way to find out is to ask. You’ll find that a majority will say that they don’t report. If they do offer it, they may charge you the fee it costs them to report it.

You could also pull your free credit report. You get access to a free copy of your Experian, Equifax and Trans Union report annually. Pull one or all three reports and look for your rent on them. If the rent doesn’t show up, your landlord doesn’t report it.

If your landlord doesn’t report it, you have a few options. Paying a third-party to report the rent for you is expensive and time-consuming on your part. You are responsible for providing proof of payment each month.

Asking the landlord to report the rent for you may be easier and less expensive for you, but they will likely only report to one credit bureau. That doesn’t help you much because you don’t know what credit bureau future lenders will look at when qualifying you.

You could just ignore the need to have rent payments reported and opt for a credit builder service. Finding a reputable, free service helps you build your credit score and avoid the fees and nonsense that goes along with reporting rent payments. Oftentimes reported rent payments don’t even help your score, so it can be a fruitless effort.

Don’t Forget Reported Rent Payments May Hurt You

Keep in mind that if you don’t make your payments on time, reported rent payments can hurt you. In fact, they can hurt you even if the landlord doesn’t report, but your account ends up with a collection agency.

It’s important that you make your payments on time every month. If you run into trouble, talk to your landlord — don’t just ignore the debt. Typically, issues don’t start until you are more than 30-days late, but why take the chance?

Your landlord may have a way to work with you. Whether they can defer your payments for a temporary period or work out a payment arrangement, the key is to have a conversation — don’t assume and definitely don’t ignore. If you ignore the debt, it only makes the problem worse and puts you at risk for damaging your credit and possible eviction.

Bottom Line

Having your rent reported to the credit bureaus isn’t all that it’s cracked up to be. It may even hurt your credit score if you aren’t careful. Instead, focus on building your credit intentionally, getting the thick credit file you need to get future loans.

FAQ: Paying Rent and Building Credit

Q. Does paying rent on my apartment build credit?

A. Simply paying your rent doesn’t usually affect your credit score. To get credit for paying rent on your apartment, your landlord needs to report your payments. Most landlords don’t do this, because it takes a lot of time on their part and often costs them money.

If you ask your landlord to report your rent, such as through a third-party reporting service, you may not get the benefits you expected. A lot of rent reports show up on your credit score the same way as other payments, but can still hurt your score if you pay late.

Q. Does paying rent on my house build credit?

A. The type of rental you live in doesn’t make a difference in whether or not your rent is reported. Just like an apartment, rent you pay on a house probably doesn’t go on your credit report. You can always ask your landlord to start reporting your rent, but don’t expect it to instantly improve your score. Most rent reporting companies don’t even report to all three major credit bureaus.

Q. Does leasing or renting a car build credit?

A. Leasing a car can build your credit, but renting a car won’t.

When you lease a car, it’s a lot like buying a car with an auto loan. You’ll make set monthly payments for the length of the lease. Each payment is reported to the credit bureaus and having a lease on your credit history can help future creditors see a healthy mix of account types.

Making on-time payments will help the most to build your credit over time. However, most car leases need a certain credit score for approval. If you’ve got no credit or a low score, your chances of getting approved for a lease might be very low.

Renting a car, on the other hand, won’t increase your credit score. It could, however, potentially hurt your score. Some rental car companies make a hard inquiry to your credit report before they let you rent the car. This happens most often if you rent a car using a debit card instead of a credit card. This hard inquiry hurts your score a little, especially if you’ve had several recent inquiries. Luckily, the damage usually drops off in a couple of months.