More tenants can now add rent payments to their credit scores
About one-third of American households rent, yet in most cases, their credit score doesn’t reflect their on-time payments.
That’s beginning to change. Renters can increasingly choose to have their timely monthly payments reported to the credit bureaus, with the goal of improving their credit profile to qualify for loans.
A bevy of third-party services now offer consumers the option of having their on-time rent payments reported to one or more credit bureaus. The bureaus — Equifax, Experian and TransUnion — can add rent payments to loan data to enhance the credit reports and credit scores that lenders use to evaluate potential borrowers.
The services typically report only on-time payments, but consumer experts recommend checking the details first. The reporting of late payments, such as when tenants withhold rent to protest their living conditions, may be a drawback to enrolling, consumer experts say.
Zillow, a real estate website, became the latest entrant in the rent-reporting market recently. Some options, like Zillow’s, are available to renters whose landlords or property managers use the company’s rental management system to process payments.
As it stands, few landlords routinely report rent payments to credit bureaus. Traditionally, only lenders have reported to the bureaus, and rent isn’t considered a loan. Fewer than 5% of the roughly 80 million adults who live in rental housing had rental data in their credit files, and it was mostly negative data from missed payments, according to the Urban Institute, a nonprofit research group focused on advancing upward mobility and equity. (Negative rent information can end up in credit files if a landlord reports delinquent accounts or sends them to a collection agency.)
But in recent years, policymakers have been exploring whether consumers can benefit from having on-time rent payments included in credit scores, just as payments for mortgages, car loans and credit cards are. Reporting on-time rent payments is viewed as a way to reduce disparities in homeownership.
Fannie Mae, the quasi-governmental home finance giant, began a pilot program in 2022 using three financial technology companies that report on-time payments from thousands of renters in multifamily buildings to the credit bureaus. Fannie Mae reported in November that its data “shows a trajectory toward better financial health for many renters.” Well over half the participants increased their credit scores. Those who already had a credit score, and saw an improvement, had an average increase of about 40 points.
TransUnion has been able to include rent payments in its credit reports since 2016 and has seen increasing interest from property managers, said Maitri Johnson, vice president of tenant and employment screening at the credit bureau. The company’s data shows that rent reporting is particularly helpful to consumers who were “unscorable,” meaning they had no or little credit history, Johnson said.
Ariel Nelson, a staff attorney with the National Consumer Law Center, said consumers should be cautious. Reporting on-time payments can make sense, she said, for people who are able to consistently pay on time and may be renting temporarily while saving to buy a home.
But there can be risks, particularly for lower-income tenants who may struggle to pay on time, she said. If a tenant opts in to reporting and pays on time for several months but then hits a rough patch and falls behind, the late payment isn’t reported. But lenders might interpret the absence of rental information on the credit report for a month or two as a negative.