Renting a home, apartment or town house can affect your credit in a number of ways. It’s increasingly common for credit reporting agencies to include positive rental history in consumer credit reports. Even in cases where your rent payments won’t get reported, the rent-credit relationship is important to consider. Having good credit can help you rent an apartment, and paying rent on time can help you build good credit.
If you don’t pay your rent on time, it is becoming more common for that to be reported. Many landlords and property management companies do report late rent or collections to the bureaus.
However, it can get a little more complicated than that. Here’s what you need to know about how renting can impact your credit, and vice versa.
Can Paying Rent Improve Your Credit Score?
In some cases, paying your rent on time may help you build credit. Each of the three major credit reporting agencies—Equifax, Experian and TransUnion—will include positive rent payment history on credit reports if they receive it.
That “if” is big, though. Your landlord must report rental history data to the credit bureau for this to happen. While property managers and companies that process rent payments are reporting such data more frequently than they used to, it’s still not a standard practice. And many landlords that own only a small number of properties don’t take this step.
Various third-party services can report your rent payment history to the credit reporting agencies. You do have to pay for these services, however. If you don’t have a lot of credit history, though, and want to demonstrate that you pay your bills on time, it might be worth the fees.
You can always ask your landlord or property manager to report your rent payment. You cannot, however, self-report your rent payments to the credit bureaus.
How Do Rent Payments Appear on My Credit Report?
Rent payments that are reported show up like an auto loan if you have a defined lease term. They show up like a charge card when you pay month-to-month. Either way, a positive rental payment history can help show that you pay your bills on time. That could help potential creditors look more favorably on you.
Some credit scoring models, such as FICO 9 and VantageScore, incorporate rental payments. By doing so, they are able to help people who are considered “thin file”—those with limited credit histories—have a credit score.
Again, credit scores can only reflect your rent payments if your credit reports include them. And older credit scoring models don’t include rental payments in calculations even when they are present on reports.
Do I Have a Rent Credit Score?
You don’t have a separate credit score just for renting. However, some companies offer services that track rental information. Landlords may pull reports from these companies to understand what type of renter you have been in the past if other landlords have reported that information.
When you fill out an application as a potential tenant, you may have to agree to a consumer credit check. A potential landlord also may check your rental history, your driving record and your criminal and civil history. They might also verify your employment.
Many landlords check a potential tenant’s credit reports and review their credit scores before agreeing to rent to them. If your application to rent a place to live is turned down due to information in a credit report, the landlord who rejected you as a tenant must provide you with a notice that describes your rights and gives you instructions for requesting a free copy of the credit report in question.
The landlord does not have to provide you with the credit report. You must take action to request your own report. You’re entitled to a free annual copy of your credit reports from Equifax, Experian and TransUnion, so you may want to review them before looking for a new place to live to avoid any surprises.
Does Applying for an Apartment or Home Hurt My Credit?
When you give permission for a landlord to request a copy of your credit report, you’ve initiated a credit inquiry. This type of credit inquiry, often referred to as a hard inquiry, does affect your credit score.
The good news is that a single hard inquiry won’t hurt your credit score too much. However, a lot of hard inquiries in a short period of time can really drag down your score. Whenever you’re planning on applying for something that may require a credit check, limit your inquiries for new credit.
Hard inquiries affect your credit most within the first six months after they’re made and will no longer affect your credit after 12 months. They age off your credit report after two years. Some credit scoring models do group inquiries under certain conditions, but it’s important to keep an eye on how many are appearing on your credit report and how they might be affecting your credit score.
Can I Get an Apartment if I Have No Credit?
If you have no credit or bad credit, finding a landlord who will accept your rental application can be tricky. A cosigner or guarantor—someone who will agree to be held responsible for your rent payments should you be unable to make them—can improve your chances of approval. You also have some other options.
If your credit history doesn’t set a positive picture for you, you’ll have to give a potential landlord a reason to rent to you. Consider offering to pay an extra month or two of rent upfront. You might offer to pay a higher deposit to ease any concerns over your bad or nonexistent credit.
The whole point of a credit check during a rental application is to assess how likely you are to pay your rent on time. If you can pay ahead of time, this lessens that concern.
You may also want to write a personal letter to a potential landlord. This lets you explain any mitigating issues behind what they may find when they see your credit history.
If you have some time before you look for your next place, it’s a good idea to work on improving your credit. One way is to try to get your current rent payments reported to the credit bureaus.
If that’s not possible, there are more reliable ways to build a strong payment history, like using a secured credit card. Secured credit cards generally do not require a credit check, so they can be relatively easy to get. And if you use very little of your credit limit and make the payments on time, you’re establishing a pattern of positive payment history—landlords like to see that.
Citi® Secured Mastercard®
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How Does Not Paying Rent Affect Your Credit?
Your property manager may send unpaid rent to a debt collector, and collection accounts seriously damage credit scores. That’s a huge reason you want to prioritize paying rent on time. An eviction won’t show up on your credit reports, though it could appear on tenant-specific consumer reports. The unpaid rent leading up to an eviction may be listed as negative items on your credit reports.
The affect your rent has on your credit standing isn’t totally predictable because it’s a relatively new factor in payment history. Here’s what all this boils down to: Good credit can help you get a rental. Paying your rent on time may help you improve your credit. Failing to pay your rent on time could hurt your chances at getting a future rental.
Focus on practicing good-credit behaviors and building credit if you have none, because it matters in so many aspects of your life. And if you have credit or rent problems in your past, be honest about them when you’re looking to rent a new place and take steps to put them behind you so it won’t be a problem in the future.
Not sure where to start? Check out the free Credit Report Card to discover the weak links in your credit history. Then, take time to work on your credit by getting inaccurate information removed or paying down debt. You may be surprised at how your renting power improves when your credit score rises.