When you’re ready to apply for a mortgage, lenders evaluate your credit worthiness based on your payment history, credit utilization, income, assets and, of course, your credit score. The higher your credit score, the more favorable loan terms you may be offered by your lender. So, it’s a good idea to prioritize building your credit history and improving your credit score sooner rather than later.

One of the most often overlooked strategies to building better credit is reporting rental payments. If you’re one of the millions of Americans who don’t report their on-time rent payments, read on to learn how reporting your rent could increase your credit score.

Reporting Your Rent

There are three major credit bureaus: Equifax^®, Experian™ and TransUnion^®. All three will include rent payment information in credit reports if they receive it. In turn, the credit report provides the data that makes up a consumer’s credit score.

There are two main credit scoring companies, FICO^® and VantageScore^®. Both use different criteria to calculate a consumer’s credit score.

VantageScore^® uses the following six categories: most recent credit behavior/inquiries, payment history, age and type of credit, percentage of credit being used, and total debt.

FICO^® calculates their score based on the following five categories: new credit, payment history, amount owed, length of credit and credit mix.

You can’t report your rent payments to the credit bureaus yourself. Payments need to be reported by a third-party reporting service that verifies your rent payments with your landlord. Some rent reporting services are free, but most will have fees attached for their services.

If you have a history of paying your rent on time and it’s not been reported previously, most rent reporting services can report past rent payments. Depending on the service, they can report 6 months to 2 years of rental payment history. Reporting past rent payments can help build your credit history, resulting in a potential positive bump in your credit score.

Choosing A Rent Reporting Service

It’s a good idea to start your search for a rent reporting service with your landlord. Many landlords already have a relationship with a rent reporting service, and you may be able to use their existing resource. If they don’t have a rent reporting service in place, then you’ll need to find a solution that works for you.

The following are a few things to consider when searching for a rent reporting service.

Price

You should evaluate the total cost of the service before committing to one. It’s important that you understand all the fees you may be responsible for upfront and later on. Do they charge an annual fee? Is there a set-up fee? What is the fee for reporting previous rental history? Have a list of questions important to you at the ready when doing your research.

Who They Report To

You’ll want to know which of the three credit bureaus the service reports to. You’ll be monitoring your credit scores closely so it’s good to know which scores could see a potential increase from rent reporting.

Additional Services

Each reporting service will have different additional services to help you build or repair your credit. If you’re in a time crunch, some services offer expedited reporting that will get your information to the credit bureaus faster. Some services can report other bills you pay on time, like a utility bill. If you have a roommate or spouse who could use a credit boost, many services offer an inclusion in credit reporting if you’re on the same lease. Be sure to ask about upfront and recurring costs for additional services before you commit to the service.

How The Service Reports Rent Payments

There are a few ways rent reporting services can verify rental payments. Understanding how your rent is reported can help you choose a rent reporting service that works for you.

• Tenant pays rent to the landlord: If your landlord is enrolled in a reporting service, you pay your landlord and they report the payment to the rent reporting service. The rent reporting service then reports the payment to the credit bureau.
• Tenant pays rent to the rent reporting service: You pay the rent reporting service your monthly rent payment. The rent reporting service then pays the landlord and reports the payment to the credit bureaus. With this payment method tenants may be asked to pay their rent a few days prior to the due date to ensure their rent is paid to the landlord on time.
• Bank-monitored rent payment: The rent reporting service will monitor your bank account and detect when a rent payment is deducted. They will then report the rent payment to the credit bureau. This is a great solution for tenants who may have a landlord who is slow to report their payments or won’t report their payments at all.

Comparing Rent Reporting Services

To kickstart your research, we’ve compared the 10 most popular rent reporting services below. Click on each company name in the table below to learn more.

Five Alternative Ways To Improve Your Credit

Paying your rent on time isn’t the only way to build your credit to buy a home. There are other strategies that can influence your credit in a positive way. Below are a few alternative strategies to help you on your credit building journey.

• Become an authorized user on an existing account. If someone you know and trust has a credit card account with a history of on-time payments, ask to become an authorized user. Once added to the account, your credit could see an improvement based on their consistent positive payment history.
• Get a credit builder loan. With a credit builder loan, a predetermined amount is held in an account with the lender. You make monthly payments, and your lender reports those payments, like they would a car or personal loan. You’re given access to the money in your account once you’ve reached your goal amount.
• Diversify your credit mix. Credit bureaus value a variety of credit types in good standing. If you don’t have any credit, consider a secured credit card or a credit builder loan to diversify the credit types reported to the credit bureaus on your behalf.
• Reduce credit utilization. When it comes to credit, the lower the balance the better. A good rule of thumb is use less than 30% of the credit limit to stay favorable in the eyes of the credit bureaus.
• Secured credit card: Secured credit cards are backed by a cash deposit paid by the user up front. The card can be used like a standard credit card. The credit card limit is typically the same amount as the deposit. Monthly payments are then reported and can help build your credit.

The Bottom Line

If owning a home is one of your future goals, it’s a good idea to get started on building your credit now. Do your best to pay your bills on time and stay mindful of your credit card usage. If you pay your rent on time and it isn’t being reported to the credit bureaus, you may be missing out on a potential credit bump.

Already looking for a home? Start the mortgage process today with our friends at Rocket Mortgage^®.