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Rent payments typically do not have an impact on your credit score; however, there are certain situations where they can influence your credit history significantly.
Experts indicate that landlords generally do not report rent payments to credit bureaus, unlike credit card issuers and financial institutions. Consequently, rent does not appear on credit reports unless a tenant or a property manager opts for a rent reporting service. These programs aim to help tenants build their credit histories through timely rent payments.
“The positive aspect is that there are many rent reporting options available today,” explained Matt Schulz, chief credit analyst at LendingTree. “This area has seen significant growth in recent years.”
On the downside, if payments are missed, such services can negatively affect your credit score. Additionally, even if your rent isn’t reported, any debt collections related to unpaid rent can tarnish your credit profile.
The Consumer Financial Protection Bureau (CFPB) began accepting complaints regarding rental debt collection in August 2023. According to CFPB data, around 10,960 complaints about rental debt collection were reported in the United States from then until February 21.
If you are a tenant or considering renting, here are key insights to keep in mind.
Benefiting the Credit Invisible
Rent reporting can be particularly beneficial for individuals classified as “credit invisible“. If you’re trying to establish or improve your credit history, these services can be valuable.
Enrolled tenants generally experience an uplift in their credit scores. On average, tenants who report their rent payments see a boost of approximately 60 points on their credit scores, according to a 2021 report from TransUnion.
However, falling behind on rent payments can also be reflected in these reporting systems, adversely impacting your credit score.
It’s important to note that some rent reporting services charge fees and may not report to all three major credit bureaus. For instance, the rent reporting service Rental Kharma charges an initial setup fee of $75, followed by a monthly fee of $8.95, and only reports to two of the three bureaus: TransUnion and Equifax.
Understanding Debt Collection Considerations
Even in the absence of a reporting service, landlords can directly report late or missed rent payments to credit bureaus through a debt collection agency, points out Chi Chi Wu, a senior attorney with the National Consumer Law Center.
Tenants might find rent delinquencies appearing on their credit reports if they move out and the landlord asserts that they owe back rent or damages; landlords usually send such debts to collections.
The presence of any collection item on a credit report, whether paid or unpaid, can cause a significant decrease in credit score. For example, a delinquent account of $100 can lower a credit score of 680 by over 40 points and more than 100 points for a score of 780, according to a CFPB report based on the FICO 8 scoring model.
However, the extent of the impact from a collection item can vary based on factors such as the current score, the specific scoring model used, and how recently the collection occurred. Importantly, paid collections may have less of a lasting effect on credit scores.
“The age of the debt collection matters; something that’s been on file for several months may hurt more than a long-standing item,” Wu noted.
Here are important factors to consider regarding how your rental history affects your credit:
Considerations for Rent Reporting Services
1. Determine if it’s necessary. Evaluate if reporting your rent will genuinely benefit your financial situation, as these services tend to be more advantageous for those with limited credit history.
“The benefits are not uniform for everyone,” indicated Adam Rust, director of financial services at the Consumer Federation of America.
2. Be mindful of costs. Some rent reporting services are free, while others charge between $6.95 to $9.95 monthly, and some may have setup fees ranging from $25 to $95, according to Apartment List. Consider who bears the cost—yourself or your landlord.
3. Check reporting coverage. Ensure that the service reports to all three major credit bureaus, as incomplete reporting can yield uneven effects on your credit profile.
“This is often overlooked,” Schulz warned.
4. Understand the data being reported. Some services may only relay positive payment histories, while others include late payments, which may not be beneficial. Ensure that you are aware of what will be reported and how it might impact future applications for housing or credit.
Addressing Rental Debt Issues
Recent data shows that there have been approximately 1,697 complaints related to inaccurate debt collection reports concerning rent submitted to the CFPB since August 2023.
If you find discrepancies in your credit report, you are entitled to challenge this information under the Fair Credit Reporting Act. Wu advises that while disputes are your right, it can be challenging to rectify errors involving debt collectors.
“These disputes often favor creditors, making resolution difficult,” Wu explained.
Even if you settle a collection account, it may remain on your credit report as a “paid” item rather than being removed entirely. Under the Fair Credit Reporting Act, negative items can stay on your credit report for up to seven years.
Notably, in 2022, credit bureaus implemented changes to remove specific medical debts from credit reports, including debts that were paid off and unpaid obligations under $500. However, aside from medical accounts, paid debts still reflect negatively on credit profiles.
“Paying off debts won’t eliminate the issue,” Wu remarked, advising tenants consider a “pay-for-delete” strategy, where payment is made to the debt collector to remove the collection from the report. She emphasizes the importance of getting any agreements in writing before proceeding. For tenants ending leases early, securing written agreements detailing any outstanding balances and obligations with landlords is also advisable.
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