Does Paying Rent Build Credit?

Renting an apartment is a huge financial commitment. Since housing costs account for most of a tenant's monthly expenses, it's understandable to hope your rental payments are giving your credit score a boost. Unfortunately, that's not always the case.

While most landlords never report rent payments to credit bureaus, there are exceptions. There are also ways you as a tenant can get creative and utilize your rent payments to build credit and improve your overall credit health.

The relationship between your credit score and your ability to rent

When it comes to renting a house or apartment, your credit score can significantly impact your ability to qualify for the place you want. Property managers often check a prospective tenant’s credit to assess their financial responsibility and determine whether they’re likely to pay rent on time.

In fact, most property managers require a minimum credit score threshold before approving new tenants. This threshold varies between different property management companies and landlords, but it serves as a general indicator of a person's creditworthiness.

To evaluate a prospective tenant's creditworthiness, landlords typically check the following:

Payment history

When you apply for a rental agreement, the property manager will often review your payment history to understand how reliably you've paid your bills and debts in the past. This includes looking at whether you've made late rent payments, missed payments, or defaulted on any loans.

Credit utilization

Your credit utilization refers to the amount of credit you're using compared to your total credit limit. Landlords may consider applicants with lower credit utilization ratios as being more financially responsible.

Length of credit history

A longer credit history provides more insight into an applicant's financial behavior. It allows landlords to see a better track record of how you've managed your finances over time.

Credit inquiries

Multiple recent credit inquiries can indicate that a prospective tenant may be taking on significant debt or going through financial difficulties.

How do landlords evaluate prospective tenants?

There are a few different ways property managers perform background and credit checks. They generally pull information from the following sources:

The three major credit bureaus

The most common way to assess an applicant's creditworthiness is to pull credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion). These credit bureaus collect and maintain information about your credit, including your payment history, credit utilization, and how long you've used credit.

Each credit bureau works independently, so it's essential for renters to understand that their credit reports from Equifax, Experian, and TransUnion may differ slightly. This is because creditors and lenders may report information to one or multiple bureaus, which can result in variations in the collected data.

By default, rental payments are not typically reported to credit bureaus. This means that even if you've never missed a rent payment in the past, a new property manager pulling your credit history won't necessarily see that information.

Landlord associations

Since most rent payments aren't reported to the credit bureaus, landlord associations play a significant role in the rental industry. Property owners and managers use landlord associations to screen and evaluate potential tenants, promote best practices, and protect their interests.

When a landlord is a member of a landlord association, they gain access to valuable resources and tools that help them evaluate prospective tenants. These resources may include tenant screening services, which provide detailed background checks, credit reports, and rental history information.

Tenant screening services

Tenant screening services play a crucial role in the rental process, not only for landlords but also for prospective renters who want to build their credit. These services provide in-depth background checks, credit reports, and rental history information to landlords. While they don't directly impact credit scores, they indirectly contribute to credit building.

When a landlord uses a tenant screening service, they can assess a prospective tenant's credit history, payment patterns, and any past issues with rental payments. By utilizing these resources, landlords can make more informed decisions about who they rent their property to, reducing the risk of renting to individuals with a history of late or unpaid rent.

As a renter, you can ask your landlord to report your rent payment history to specialized rent-reporting services. These services then include your rental history and payment information on your credit report, allowing you to build credit over time.

How does your rental history affect your credit?

Paying rent only affects your credit if your landlord reports your timely payments to the credit bureaus or uses a third-party rent-reporting service — neither of which are standard practices.

If your landlord reports your rent payments, it works like any other line of credit on your credit report. Consistently paying your rent on time and in full can help establish a positive payment history, showcasing your responsible financial behavior. This may have a positive impact on your credit score and your ability to rent or buy a home in the future.

On the other hand, if you consistently miss rent payments or pay late and your landlord reports this activity, your credit may suffer. Late or missed rent payments can indicate financial instability to potential creditors. This makes it harder to qualify for loans, credit cards, or other forms of credit.

How to build credit with timely rent payments

Building credit by paying rent can be tricky. Since landlords don't typically report tenant activity to the credit bureaus, you may have to look into other options for boosting your credit score with rent payments. Fortunately, there are several options worth considering:

Landlord-enrolled rental reporting services

Landlords can enroll in third-party services that specialize in reporting rental payment history to the credit bureaus. Doing so ensures that on-time rent payments are regularly reported, potentially boosting a good tenant's credit score and establishing a positive credit history.

There are many paid services to choose from, but it's worth noting that Fannie Mae launched a pilot program in 2022 called the Fannie Mae Positive Rent Payment Program. This program is offered to Fannie Mae-financed multifamily property owners at no cost.

Other services that landlords and property managers can utilize include:

  • ClearNow
  • PayYourRent
  • Rent Dynamics
  • Esusu

As a tenant, you probably don't have much say in whether your landlord enrolls in a third-party rent-reporting service, but it's worth asking them about it.

Tenant-enrolled rental reporting services

There are also online platforms that allow renters to self-report their rental payments. These services act as intermediaries between you, your landlord, and the credit bureaus, verifying and reporting your monthly payment information. By enrolling in one of these services, you can ensure that your responsible payment behavior is reflected in your credit history.

Unfortunately, you’ll have to pay to enroll in a self-reporting service. Some services charge a one-time enrollment fee while others operate on a subscription model. Your landlord will also need to be willing to verify your monthly rent payments.

Despite the cost, these services can be worth it when you’re trying to build your credit. Plus, in some cases, these services let you include your utility payments, giving you even more opportunities to boost your credit health.

Some services you might consider include:

  • Rental Kharma
  • RentReporters
  • Rock the Score
  • LevelCredit  
  • PaymentReport

Keep in mind that not all landlords or rental properties participate in third-party services or allow self-reporting. Before signing a lease, ask the property manager about their willingness to help you report timely rent payments. They may even have some suggestions.

Make monthly rent payments with your credit card

While rental payments themselves aren't directly reported to the credit bureaus, you can strategically use your credit card to pay rent and build credit. Simply make your rent payments on credit and pay off the credit card balance each month. If you have a limited credit history, consider using a secured credit card.

There are drawbacks to paying rent with credit, however. For one, if you fail to pay off the entire rent amount each month and your credit card balance snowballs, your debt-to-income ratio increases. This can cause your credit score to go down. Because of this, it's imperative to promptly pay off the balance after paying rent. Doing so demonstrates to the credit bureaus responsible financial behavior.

Some property management companies may charge a convenience fee for credit card payments, plus there's credit card interest to consider. Be sure to weigh your options and decide whether the extra charges associated with credit card payments are worth the credit-building potential.

5 tips for renting an apartment with bad credit

Many landlords and property management companies require applicants to have a minimum credit score to ensure their tenants can pay rent on time. As a result, trying to find an apartment with bad credit can be a challenge.

Here are a few strategies that may increase your chances of securing a lease, even with bad credit:

1. Offer a larger security deposit

Offering the landlord more money up front than the required security deposit can alleviate concerns about your creditworthiness. Taking out an unsecured personal loan is a good way to cover the security deposit and other moving costs.

2. Provide references and proof of income

When applying for a new rental agreement, bring written references from previous landlords along with proof of your current income. If you can't get a reference in writing, ask your previous landlord if they'd be willing to provide a reference over the phone.

3. Get a cosigner with good credit

If your credit is particularly poor and you've had issues paying rent in the past, consider asking someone with good credit to act as a cosigner. The person who co-signs your lease becomes responsible for the rent if you fail to pay, giving landlords more confidence in renting to you.

4. Pay some of the rent in advance

Paying several months' rent up front can be enticing to landlords, as it mitigates their risk and ensures they have immediate access to the funds. Again, you may have to take out a personal loan to cover multiple rent payments all at once, but it may be worth the added interest and loan fees to secure an ideal living situation.

5. Consider moving in with a roommate

Sharing the apartment with a roommate can reduce the financial burden on both parties and increase your chances of being approved. Landlords may be more willing to overlook bad credit if you have a co-applicant with a solid credit history.

Remember, it's important to be transparent about your credit history when communicating with potential landlords. Being honest about any previous credit issues and implementing some of these strategies may help you secure an apartment even with bad credit.

Explore loan options for renters with bad credit

While you may not directly build credit with rent payments, there are plenty of workarounds that can help improve your credit score. Paying your bills on time is key, so if you're short on cash this month, Advance America can help you avoid a late or missed payment. Compare our loan options online or visit your local branch for more information about our emergency loans and cash advances.

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