On-time payments are a solid way to build your credit score. Your payment history constitutes 35% of your credit score – the largest contributor among the five factors used in calculating your score.
Payments on most debts are reported to the three major credit bureaus (Experian, Equifax, and TransUnion) for inclusion in your credit report, and credit-scoring systems use that information to calculate your credit score. However, one regular payment for many Americans is reported to credit bureaus in a purely negative fashion. When renters are late on payments or evicted, that information is typically reported to credit bureaus – but regular, on-time payments are not.
That's particularly difficult for lower-income households. They are more likely to be renters than homeowners and are also more likely to need a good credit score to access credit at reasonable interest rates.
If your credit score needs a little extra boost – or if regular rent payments are about the only good thing you have to report – rent reporting services such as Rental Kharma, RentTrack, ClearNow, and Pinch are available to supply the credit bureaus with your rental payment history, so you can reap credit-score benefits. (Obviously you'll need to make on-time payments to see those benefits).
Some property management groups are already connected with a rent-reporting service, where all you need to do is opt in. Check with your landlord to see what options are available. Otherwise, you'll have to work with one of the services directly.
As you evaluate services, check out the following:
Bureaus – Some services are linked directly with one of the three major credit bureaus. Others report to two bureaus, and a few (RentTrack, PayYourRent, and Pinch in particular) report to all three bureaus.More reporting of positive information increases the positive effect on your credit.
Fees – Services directly linked to a property management group, like PayLease or PayYourRent, may be free to you. Other fee structures vary from monthly flat fees to fees per transaction to variable charges based on your rent amount. Rent Reporters and RentTrack, among others, offer a potential quick credit boost by the addition of up to two years of past rental payment for a one-time fee.
Payment Logistics – What options do you have for payment? Are there options for linking to a debit/checking account or credit card? Does the reporting service require that you funnel rent payments through them, and if so, what are the timing and terms?
Service-Specific Details – Do you have to opt in to the service? How long should it take for rent payments to appear on your credit report? How is your personal information protected? If you would like to prevent identity theft, join MoneyTips.
Landlord Requirements – Landlords may be required to verify your payments. Make sure your landlord is open to the responsibilities and verify with the rent-reporting company how any disputes with your landlord are handled.
Even if your regular rent payments are reported to the credit bureaus and incorporated on your credit report, your credit score may not be affected in the eyes of some lenders. There are several different score variations tailored for risk factors in specific industries.
To make the most out of your reported rent payments, ask lenders whether regular rent payments are included in your score. It may not make much difference, but every little bit counts when you are trying to get credit at reasonable interest rates in a competitive market.
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