There are many ways to build credit, and paying rent can be one of them. That is, as long as your rent payments are being reported to the major credit bureaus — Equifax, Experian, and TransUnion. From there, you’ll also need to make sure you’re regularly making on-time payments, as late or missed payments can have a negative effect on your credit.
While it may not feel as automatic as other methods, with some effort, you can use your rent payments to build your credit. Here’s a closer look at how to do so.
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How Paying Rent Affects Your Credit
Paying rent has the potential to affect your credit in two major ways: through your traditional credit history or through alternative data.
If you use your credit card to make rental payments, then your account activity will get included in your credit report. If you’re making timely payments in full, then this can positively impact your credit score. Late or missed payments, on the other hand, can lead to negative effects on your credit score.
Alternative data refers to sources that are not typically used to calculate credit scores. However, some lenders may consider them to determine creditworthiness. Rental payments are one example of alternative data — though for this information to count, you’ll usually have to enroll in a rent reporting service. And again, in order to build your credit through rental payments, it’s necessary to make those payments on time.
Can Your Rent Payments Appear on Your Credit Report?
Rent payments can appear on your credit report if your payment activity is reported to the major credit bureaus. To find out if your rent gets reported, ask your landlord or the property management company.
Your method of payment also affects whether your rental payments will show up on your credit report. For example, if you’re able to pay rent with a credit card, your payment should show up on your credit report. However, if you pay with a check or bank transfer, your payment most likely will not appear on your credit report.
Can You Manually Report Rent Payments to Credit Bureaus?
Unfortunately, you can’t report your rent payments to the credit bureaus on your own. Your landlord usually won’t be able to either, unless your building is managed by a property management company that does.
The good news is that there is a workaround to getting your rent payments reported, but it involves using a rent reporting service.
Tips for Getting Credit for the Rent You Pay
There are two main ways to get your payment activity put on your credit report: enrolling in a rent reporting service or using a method of payment that’s guaranteed to show up on your credit report.
Sign up for a Rent Reporting Service
You can sign up for a rent reporting service yourself, or you can ask your landlord to do so if you’re hoping to use your rent payments to establish credit. If you sign up yourself, you may have to go through some verification procedures, such as having your landlord verify your rent payments.
In most cases, you’ll pay a fee for using the service. You may pay a set-up fee only, or you could owe a monthly fee. If your landlord signs up, they could incur a fee that they may then pass onto you. Still, it could be worth it if you want your rent payments reported to the credit bureaus.
Use Your Credit Card
If your landlord or property management company accepts this method of payment, then using your credit card could get your rent payment put on your credit report. Keep in mind that like rent reporting services, you may be charged a processing or convenience fee for using your card to pay for rent.
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Does Missing Rent Hurt Your Credit Score?
Missing even one payment could affect your credit score negatively if your rent payments are reported to the credit bureaus. Considering that payment activity is one of the major factors used in calculating your credit score — your payment history makes up 35% of your FICO — it’s best to try and make on-time payments each month.
However, if you don’t use your credit card to make rental payments, you aren’t signed up for a rent reporting service, and your landlord doesn’t report your payment activity, then your credit score will most likely not be affected by missing rent. Still, missing rent payments can have other serious implications down the road, from making it harder to negotiate rent in the future to possible eviction.
Other Ways to Build Credit
While paying rent can build credit, there are other ways to go about doing so. If you’re hoping to establish your credit, here are some alternatives to consider.
Take Out a Personal Loan
The good news is that there are many loans that are specifically geared toward those looking to build their credit. Sometimes marketed as credit-builder loans, these loans approve you for a specific amount that you then make payments on in monthly installments until the amount is paid off in full.
Unlike a traditional personal loan, the money borrowed is held in a savings or escrow account — think of it as forced savings — and your payment activity is reported to the credit bureaus. Once you pay off the loan, you’ll receive the funds, minus any applicable fees.
You can also choose to take out a traditional personal loan, where you’ll receive a lump sum upfront. The amount you qualify for and the terms of the loan will depend on your creditworthiness. In fact, if you’re in a bind and have strong credit, you can even use personal loans for rent.
With either of these options, make sure to shop around for lenders and compare offers. Also take the time to read the fine print carefully, so you understand exactly what you’re getting into.
Become an Authorized User
Another option to build credit is to ask someone you trust — such as your spouse or a relative — who has good credit to make you an authorized user on their credit card. Doing so means that this account gets added to your credit history.
This can allow the primary cardholder’s credit activity to help you build your credit, as long as they continue to be responsible with their credit card. In turn, this could help you to secure the necessary credit score to rent an apartment or qualify for loans.
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Use a Credit Card
Another way to build credit is through responsible credit card usage. Depending on your credit history, you can choose from a secured or unsecured credit card. A secured credit card may be easier to qualify for, since many are geared toward those with limited or no credit history. You’ll need to put down collateral (usually a refundable deposit), which will serve as your credit limit.
Or, you can try to apply for an unsecured credit card if you believe your approval changes are high. Some credit cards, like the SoFi Credit Card, may even offer perks like cash-back rewards.
Whichever route you go, make sure to stay on top of making your payments on time, and avoid using too much of your available credit limit. You could even consider paying your bills with a credit card to build up your payment history.
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The Takeaway
You can build credit with your rent payments if you make them using your credit card or if your payments get reported to the credit bureaus. Ask your landlord or rental company if payments already get reported to the bureaus. If they don’t you can sign up for a rent reporting service, though you’ll most likely pay a fee to do so. From there, rent can affect your credit score positively or negatively, depending on whether you’re timely with your payments.
Aside from paying rent to build credit, there are other, often easier ways to build credit. This can include applying for and responsibly using a credit card, such as the SoFi credit card. With the SoFi credit card, you can lower your APR by making 12 monthly on-time payments.
FAQ
How soon will my rent payments appear on my credit report?
How soon your rent payments will appear on your credit report depends on several factors, including when you made your payment, how you paid, and whether you did so through a credit reporting service. Experian, for instance, receives updates every 24 hours, though it could take longer for your rent payment to show up on your credit report.
Can I boost my credit by paying rent?
You may be able to build your credit by paying rent if you use a method of payment that gets reported to the credit bureaus or if you sign up for a rent reporting service. Otherwise, if your landlord or property management company doesn’t report your payment activity, it won’t affect your credit.
How long does unpaid rent stay on credit?
If you missed a rent payment and your rent payments do get reported to the credit bureaus, the negative remark may stay on your credit report for up to seven years.
Photo credit: iStock/miniseries
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