Building credit can be a frustrating endeavor for many: Too short a credit history or too low a score, and you’re bound to be excluded them from many lending opportunities.
At the same time, it’s a truism that one of the very best ways to build credit is to use credit. This gets complicated, though, for those struggling to stay on top of loan payments or even get approved for credit because their credit file is too thin.
One potential answer? Some consumer advocates are pressing landlords to report tenants’ on-time rent payments to the credit bureaus.
In recent years, property management companies and landlords across the country have individually started using electronic payment services that let tenants have their payment information reported to credit agencies including the big three: Equifax, Experian and TransUnion.
It’s still a long way from a ubiquitous practice, but it is catching on.
Recently, the New York City Comptroller’s Office issued a proposal to give all New York tenants the opportunity to add their rent payments to their credit reports using an opt-in system. (Some two million households in the city pay rent every month.)
Through the proposed program, the city hopes to improve economic opportunities for renters, especially those lower-income residents with poor credit or no real credit history facing limited access to common financial services.
For people who may have a thin credit file, or whose negative credit behavior has dragged down their scores, adding rent payment information to credit reports could be a welcome boost. An estimated 76 percent of New York City renters who have chosen to report their rent payment to credit bureaus will see their credit scores improve by more than 11 points, according to the Comptroller’s Office. Many others might not see a numerical change, but would nonetheless add depth to their credit histories, the office added.
A 2014 TransUnion report suggested that eight in every 10 subprime consumers — whose who may be considered having higher credit risks — experienced an increase in their score one month into their new apartment lease.
Of course, the opposite might be true if tenants slip up and miss a rent payment or pay late. Credit expert John Ulzheimer cautions that this practice may hurt some consumers as much as it might help others. He calls the report’s 11-point increase findings “purely speculative.”
“This is another example of government not truly understanding the mechanics of the consumer credit reporting system and the potential downside to such a mandate,” Ulzheimer tells MagnfiyMoney. “The presumption is that rent will always help someone. That’s without basis.”
However, there’s evidence that reporting rental payments to credit bureaus might encourage renters to stay on top of their payments.
In a 2015 study of a rent reporting pilot program, researchers found rent reporting led to a higher timely rent payment rate among residents. The majority of the participants in the pilot program of more than 1,250 residents saw their credit scores increase, though 14 percent of them didn’t experience any change, and another 7 percent even experienced a drop. The study was piloted by Credit Builders Alliance, a national nonprofit dedicated to helping low- and moderate-income households and businesses build credit and financial access.
How to report your rent payments to credit bureaus
Get your landlord involved. If you are renting, ask your property management company or landlord about whether rental data is being reported to credit bureaus. Some may work with rent payment services that share information to some or all of the three major credit reporting bureaus and some pay a fee — if there is one — so that it’s free for tenants. These services allow landlords to collect rent electronically. They also give renter the option to report his/her payments to credit agencies.
Take matters into your own hands. If your landlord or property manager doesn’t report rental data, urge him or her to do so. Meanwhile, you can enroll in a rent payment service yourself. With some services, you can tell the agency the rent amount and its due date. And the firm will deposit the money into the bank account of your landlord or property manager for you. With others, they don’t process your payment, but only verify your rent history with your landlord and do the rent reporting. Just watch out for fees, as they will might charge registration, wire transfer or other fees for paying via credit or debit.
The list of agencies below report rental data to credit agencies, with a cost ranging from free up to $10 per month. You will have to opt in for credit reporting. Some report payments to all three credit bureaus, and others only do so with one.
Who signs up?
Which credit bureaus
$6.95 for payments made
Sign-up fee: $25 per person
Sign-up fee: $94.95 per person,
$9.95 per month
$4.95 per eCheck
$0-$9.95 per eCheck
$3 per transaction
$1.95 per transaction
Should you pay to have your rent payments reported to credit bureaus?
As you can see from the table above, there are a few services that allow tenants to take the initiative on reporting.
But the cost might not be worth the potential benefit. Rent Reporters, for example, charges a hefty sign-up fee just shy of $95. On top of that, you’d have to pay close to $10 each month for ongoing reporting.
There may be other better low-cost ways to improve your credit:
Applying for a secured credit card
To open a secured credit card, you have to provide the bank with a deposit (typically $200 or more). The bank will keep the deposit as collateral and give you a credit limit equal to your deposit. Once open, this card works just like any other credit cards. Your credit limit, balance and payment information are reported to the credit bureaus. But if you don’t pay your credit card on time, the bank can take your deposit and apply it toward the debt.
Getting a store card
You might have been asked if you’d like to open a credit card at various department stores. Those store cards usually come with really high interest rates, but there is a big perk: Approval of people with low credit scores is more likely. Once you get a store card, make sure you only use it to make one small purchase a month and pay it off on time and in full. If you find it difficult to resist temptation, unsubscribe to emails about deals and don’t even carry your plastic around with you.
Opening a college credit card
If you are a college student, you can apply for a credit card, perhaps by having a parent co-sign, or take out a loan to help cover education costs. You can find a list by filtering for college students on our Cash Back Rewards page.