Does Renting an Apartment Build Credit?

The monthly rent you pay is likely a significant part of your paycheck, with the rest of your budget being sorted out after this particular payment. In a way, when you rent an apartment for the standard 12 months, you’re taking out a loan and paying it back on a monthly basis. When you look at it that way, making so much effort to make regular on-time rent payments should count for something, right?

The Importance of Credit History

There is also the fact that most landlords and property management companies will always look at the credit history and ask for credit reports of every potential tenant they consider. While there might be some in Michigan that accept bad credit or a low credit score, one usually needs a good credit score and a decent payment history to qualify for a desirable apartment.

On the other hand, if a tenant is late with their rent payments, that can hurt their credit score. The same applies if they are evicted due to late rental payments or any other reason. In some cases, such incidents can absolutely wreck the credit scores of an individual. With a bad credit score and credit report, a tenant will find it hard to sign a lease. Plus, it’s one of the situations that can disqualify you from renting an apartment. The same credit reports will also make it more difficult to get approval for credit cards.

Does Renting an Apartment Build Credit?

House Key Rental

So, does paying rent build credit? Since our rental payment history and credit history is so important while renting, our rental payments just might count as loan payments and may contribute towards building credit.

Signing an apartment lease usually brings up all kinds of questions about credit accounts, credit scores, and similar issues. Having the payment of your rent build credit can be a great boon, especially when it feels like paying rent is a drain on your finances. In addition to finding out what credit score you need to rent an apartment in a certain area, it’s useful to consider how you can up your credit score by paying rent on time.

Wondering if those on-time rent payments can help to build your credit score? Let’s have a detailed discussion to determine just what hidden benefits there might be in paying rent every month.

Do Rent Payments Affect Your Credit Score?

You have had to hand in your credit report in order to get approval for a rental application. While there are other documents that you need to rent an apartment, a credit report and credit score are especially important. Even these inquiries can have an effect on a would-be tenant’s credit score.

While inquiries from landlords and other parties can influence up to 10% of a credit score, you can treat your apartment hunting like auto loan or mortgage rate shopping. This means that tenant-related screening inquiries come under special treatment – they are only counted as a single inquiry if they’re all within a certain time frame.

Not All Agents or Landlords Pull Credit Scores

If a landlord or leasing agent doesn’t pull your credit scores or ask for a credit report, simply applying for any apartments won’t affect your credit score. This also applies in case the potential landlord uses a soft credit check. If you still have doubts, ask your to-be landlord about the chances of a credit review or credit score checking during the process.

Are Your Rental Payments on the Credit Report?

Apartment complexes now have access to services that report rent payments. A rent reporting service will work with each of the three major credit bureaus. While the credit bureaus Experian and TransUnion work with landlords, the credit bureau Equifax works with third-party platforms that report rent payments.

There are also some companies that directly work with the consumers. These help individuals to report rental payments directly. Some examples include RentTrack, PayYourRent, ClearNow, Cozy, etc. With rent reporting services like these, the tenant should have no trouble giving proof of their on-time rent payments to the main three credit bureaus.

Can Rent Reporting Enhance a Credit Score?

Recently, the rental market has seen some headway in the matter of rent reporting, reported rental payments, and so on. However, the services of most rent reporting services are not commonly available. For instance, tenants who rent from individual landlords or smaller companies will probably not get rent reporting services. Therefore, you’ll need to conduct additional research if you’re renting an apartment from an individual landlord.

No Guarantees

Let’s say that you do get rent payments on your credit reports that are also recognized by one of the main three credit bureaus. Even so, there’s no guarantee that this rent reporting will result in a major improvement for any kind of credit score. Perhaps, some consumers might see a major effect after adding rent payments to their credit reports. However, the percentage is quite small.

With more progress and awareness about rent reporting, current and future tenants might eventually be able to work the process more in their favor.

Assuring a Future Landlord

The good news is that adding rent payments to a credit score can help out if and when a landlord reviews a credit report manually. A timely rent payment each month is a highly positive factor for most people in charge of rental properties. So, youll probably be upping your chances of building your credit score here.

Does a Late Rent Payment Adversely Affect Credit?

Unfortunately, renting an apartment can adversely influence your credit score when you’re late on payments. The same applies if you break the lease, fail to pay move-out fees, get evicted, or have a reported unpaid amount to any major credit bureaus.

A rent reporting service can also report any unpaid balances to the major credit scoring companies and credit bureaus. This will majorly hurt any credit score.

Boosting Credit Scores by Paying Rent with a Credit Card

If you’re willing to consider an indirect method of enhancing your credit score, try using a credit card for rent payments. You can even have a separate credit card just for those timely payments each month, provided that your landlord has no issue with this payment method.

Of course, the best way to use a credit card is to pay off the remaining balance every month. If you do this, the timely payments will be good for boosting your credit report. However, do keep in mind that there could be a processing fee for using your credit card as a payment method.

How Do Cosigners Fare?

You may wonder if cosigning for an apartment affects your credit. Cosigning occurs when a potential tenant has bad credit scores or even no credit at all. Think of a person who is renting a place for the first time and needs a parent to co-sign the lease. The cosigner usually won’t be living in the rented space, but they’ll assume responsibility for the rent payment according to any credit bureau.

Of course, the risk of cosigning also means that your credit score is at stake. The rent reporting service will also include the payments on a co-signer’s credit report as well as that of the main tenant. Any credit checks will also impact the co-signer’s credit.

Even if a rent reporting service isn’t used in such situations, any debt collection due to non-payment will have a negative effect on the credit score of the cosigner. That is why cosigners have to be quite alert about ensuring that monthly rent payments are as regular as possible. Most landlords won’t directly get in touch with cosigners until there’s a sizable balance that’s way past the due date.

Late Payment Can Be an Issue

A cosigner might pay for a rent reporting service that’s separate from the major credit bureaus and the main tenant. Alternatively, the landlord might subscribe to a credit or rent reporting service of their own. In such cases, the co-signer’s credit will only suffer if a collection agency reports a very late and overdue balance.

Learn about Alternative Data

The Consumer Financial Protection Bureau (CFPB) puts rent payments under the classification of alternative data. That is because it’s the information that’s usually not included in a credit report. However, such data can be useful in evaluating the creditworthiness of an individual. Just a few examples of this data type include:

  • Payments for cable televisions and internet connections
  • Bank account information
  • Payments for cell phone services

This alternative data can help your credit score, especially if you’re already paying your rent on time. When you hire a rent reporting service, make sure to ask them about this aspect of financial responsibility.

The Takeaway

Renting an apartment is no small feat; you have to jump through a lot of hoops and provide documentation, proof, and whatever else it takes to get that booking. If a rent reporting service can help you get a better credit score, it might be worth taking the leap. In any case, it’s best to conduct a cost-benefit analysis and check out the pros and cons before making a final decision. To start with, why not check out the most likely rent reporting service near you today?

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