Rent payments typically don’t influence your credit score, but under certain circumstances, they might. This rare occurrence can have a big impact.
Landlords generally don’t report timely rent payments to credit bureaus like credit card companies do, so rent doesn’t usually appear on your credit history. But when it does, it’s often because either tenants or their property managers have signed up for a rent reporting service. These programs are designed to help tenants build their credit through consistent, on-time rent payments.
According to Matt Schulz, chief credit analyst at LendingTree, "The good news is that there are a lot of rent reporting services available, and the market for them has expanded in recent years."
However, these services can harm your credit score if you miss payments. Even if you choose not to report your rent, falling behind can lead to debt collection efforts, which can tarnish your credit.
In August 2023, the Consumer Financial Protection Bureau (CFPB) started accepting complaints concerning rental debt collections. Since then, around 10,960 complaints have been recorded in the U.S. through February 21, as per CFPB data.
If you’re renting or planning to rent, here’s what you should keep in mind.
Helping the ‘Credit Invisible’ Through Rent Reporting
Rent reporting can be particularly beneficial for those who are "credit invisible" or have no credit history. These platforms can aid in credit building, especially for those without prior credit.
Typically, individuals who use these services see a notable boost in their credit scores. TransUnion reported in 2021 that consumers can experience an average increase of 60 points when rent payments are included in credit reports.
However, not keeping up with rent can negatively reflect in these reports, potentially lowering your credit score, experts caution.
Another point to consider is that rent reporting services aren’t always free and may not report to all three major credit bureaus. For instance, Rental Kharma charges a monthly fee of $8.95 after a $75 setup charge and only reports to TransUnion and Equifax.
How Rent Appears as a Debt Collection
Even without a rent reporting service, landlords can report overdue or unpaid rent to credit bureaus via debt collection agencies, explains Chi Chi Wu, a senior attorney at the National Consumer Law Center.
When tenants vacate and landlords claim back rent or damages, they often send the owed amount to a collection agency, which might then appear on credit reports.
A 2014 CFPB report highlighted that introducing a collection tradeline of at least $100 can drop a credit score by over 40 points if the score was 680, and more than 100 points if it was 780. However, various factors, such as the initial score and recency of the collection, can influence this impact, experts mention. Debt that’s a few months old is more damaging than older collections, Wu explains.
Key Considerations for Rent Reporting Services
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Assess Your Needs: Determine if reporting your rent could significantly benefit you. Experts note its advantages are more pronounced for those with weaker credit histories. "Not everyone will find it valuable," says Adam Rust, director of financial services at the Consumer Federation of America.
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Understand the Costs: While some services are free, others charge between $6.95 to $9.95 monthly. Initial setup fees can range from $25 to $95. Ensure you know who bears these costs.
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Check Bureau Reporting: Ensure the service reports your payments to all three major bureaus, recommends Schulz. Some may notify only one or two, which could limit the effect on your credit.
- Know What’s Reported: Some services report only on-time payments, while others might note late payments. Even with positive-only reports, if consistent payments suddenly stop, lenders may get suspicious, Wu warns.
Life can be unpredictable, as recent job losses among federal workers highlight. "Many didn’t expect to be late on rent, yet circumstances changed," Wu points out.
Addressing Rental Debt
Errors in rental debt can lead to false credit report information. From August 2023 to February 21, approximately 1,697 such complaints were recorded, CFPB data shows.
Under the Fair Credit Reporting Act, you have the right to dispute erroneous credit information, Wu notes. However, it’s typically challenging, as creditors often side with debt collectors.
"Think of it like a referee always favoring the home team," Wu quips.
Even paying off the debt as a collection item won’t instantly remove it from your report; it merely appears as "paid." The Fair Credit Reporting Act stipulates such adverse items can remain for seven years.
In 2022, credit bureaus announced they’d remove certain medical debts from reports, but other items, even if settled, remain flagged.
To address this, you might negotiate a "pay-for-delete" with collectors. If pursuing this, ensure you have it in writing, and consider seeking legal advice, Wu suggests.
When ending a lease early with your landlord’s agreement, get all details in writing to safeguard your interests.
