Rent Reporting to Credit Bureaus
Most buyers who rent to own use their lease term to work on improving their credit; but, did you know that renting to own itself can improve your credit?
It doesn’t happen often, but with a little effort, your timely rent payments can positively affect your credit score.
How does rent to own affect your credit score?
Payment history is calculated based on the percentage of payments you have made on time. It has a high impact on your credit score. The more timely payments you make, the smaller the percentage of late payments you’ve made will be.
If your monthly rent to own payments are reported to the credit bureaus, they will diminish the impact of late or missed payments from years ago.
Diminishing the impact of those payments will raise your credit score and make it easier for you to secure mortgage approval.
FICO and the three major credit reporting agencies all use rent payments in their algorithms for calculating your credit score, when available. You should be aware that each of them generates many variations of your credit score for different reasons. For example, a bank might place more importance on timely rent payments than an insurance company would. Therefore, your rent payment would have a stronger effect on the credit score given to the bank vs the credit score given to the insurance company.
What’s the catch?
If the process is so beneficial to tenants, why doesn’t everyone do it? For starters, you cannot report your own timely payments, which makes sense because untimely payments would never be reported and the data would be skewed. However, landlords have no incentive to report your timely payments.
Even if they are interested in helping you, most landlords don’t know how to because the methods of doing so are fairly new.
If your landlord has more than 500 units, they can report your rent payments directly to Experian, one of the credit reporting agencies, but that is not the case for rent to own. Rent to own sellers aren't usually landlords by profession, they're people looking for an alternative way to sell their homes. Meaning, they are a landlord of one unit.
The alternative is for your landlord to collect payment from you using one of a multitude of online rent payment collection services. Once you pay the service, they report to the credit bureaus that you paid your rent on time.
There are a bunch of different websites that offer the service, but they all have a different catch. Some of them charge a percentage of your rent as a transaction fee, others charge a flat fee per payment, some have registration fees and others charge a monthly fee.
Rent Reporting Services
Here is break down of several rent reporting services. Read through and draw your own conclusions.
|Service Name:||Cost:||Bureaus Reported To:||Can report previous payments?|
|Rent Track||Monthly Fee: $2.95||Transunion, Equifax and Experian||Yes, up to 2 years|
|ERentPayments||Transaction Fee: $3||Transunion, Equifax and Experian||Yes, up to 2 years for Transunion and Equifax.|
|PayYourRent||Monthly Fee: $9.95
Credit Card Fee: 2.75%
|Transunion and Experian(Opt-in)||No.|
|Rental Kharma||Enrollment Fee: $40
Monthly Fee: $9.95
|Transunion||Yes, for $5 per month reported up to 2 years.|
|Rent Reporters||Enrollment Fee:
Monthly Fee: $9.95
|ClearNow||Monthly Fee: $14.95||Experian||No.|
There are other options to choose from as well, like Paylease and Rentler; however, these don't have fees readily available on their websites.
Should You Use a Rent Payment Reporting Service?
The answer is maybe. Your best option is to meet with the bank(s) through which you plan to get your mortgage. Discuss what type of credit score it uses to make decisions about applicants. Do they place importance on timely rental payments?
If they don't, save money by paying the seller/landlord directly. It isn't worth suggesting this option to the seller if it isn't going to benefit you.
If they do, do research on the different rent payment service providers beyond what we have provided. Read reviews to make sure you choose the most trustworthy option. Then, choose the provider that you feel is giving you the best value.