Paying Rent Can Build Your Credit — Here’s How

More than half (51 percent) of the U.S. population is underrepresented in credit, Self Financial’s senior vice president of strategy Matt Briggs said at a financial conference. Verified payment history for some of our largest purchases — like rent and utilities — can serve as leverage for consumer credit.

How much of a credit increase can you get by reporting on-time rent payments, and how does it end up on your credit report? Here’s how it works.

For a long time, only missed rent payments could impact your credit score — which makes a negative dent in your credit. Now, on-time payments are beginning to positively impact people's credit scores.

Briggs said on-time rent payments over the long term can boost credit scores up to 40 points. This could change the game for consumers’ ability to borrow, such as with a mortgage. In fact, Briggs said Fannie Mae could have underwritten 17 percent more homes from a pool of rejected applicants had rent payments spiked their credit scores.

In the U.S., 27.9 percent of white families rent, according to Pew Research. Meanwhile, 58 percent of Black families rent and 52 percent of Hispanic families rent. Imposing alternative credit reporting factors makes building a robust and positive credit history more attainable for a wider swath of people, including BIPOC [Black, indigenous, and people of color] individuals.

The vast majority (reportedly 90 percent) of lenders reference a consumer’s FICO Score when tapping their credit. This algorithm combines elements of the three major credit bureaus, Equifax, Experian, and TransUnion, into one readable number.

FICO algorithms are always evolving, but lenders are still stuck on old models. The newest version, FICO 9, was released in 2014 but it still isn't used everywhere (though the tides are shifting). FICO 9 factors in on-time rent payments as a verified payment history, which can positively impact credit scores over a period of years.

So how do consumers report their rental history to the credit bureaus?

There are numerous online tools for doing so, but the main thing you want to make sure of is that the tool reports your rental payments as verified transactions. Otherwise, it may not be as effective as you think it is.

You will also want to make sure you understand how a tool works before paying for anything. Some tools are free (or freemium). Some tools cost money, use that money to help you build credit, then return a portion as a sort of rebate. Others just have an outright monthly fee. It’s worth exploring all free credit-building options before paying for anything, but you’ll need to analyze the timeline and scope of your borrowing goals to determine what’s best for you.

Some options for reporting rental payments include:

1. Altro, formerly Perch Credit (free)
2. CreditBoost by Avail ($0–$5/month)
3. Self Financial ($25–$150/month, with an 86+ percent refund)

Naturally, having to pay and/or expel effort for rental payment reporting isn’t ideal (nor is it equitable). However, we aren't yet in a space where landlords report on-time rental payments by default as part of the accounts receivable process, automatically informing the latest credit algorithms. There’s only so much an algorithm can do, but now that we know rental payment reporting works, all that’s left is to implement a system that favors it.