Having good credit helps you open many important doors in your life. It helps you do things like get a cell phone plan without having to prepay, buy or lease a car, open up credit card accounts, and rent or buy a home. Your credit score also determines how much you'll spend on loan interest, and can influence automobile and home insurance costs as well. The higher the score, the lower the rates.
Here at RentTrack, we're focused on making sure the rent you pay every month helps to improve your credit score if you pay on time. This is a great way to boost your score without adding debt. In fact, it's a relatively new option — credit bureaus have only allowed consistent, on-time rent payments to be counted as a positive on your credit history since 2014. The results have been impressive in the handful of years that rent reporting has been an option for tenants — we've seen scores increase as much as 29+ points in a two-month period, and 132+ points over a couple of years.
Despite all the signs that point to the benefit of positive rent reporting, there are still some unfortunate misconceptions about rent reporting out there. Here are five of the most common — and the truth about rent reporting.
Misconception #1: "I shouldn't sign up because I don't always pay on the first."
Reporting late payments has always been a landlord's right, whether their tenant is signed up for a rent reporting service like RentTrack or not. But if you use a certified rent-reporting agency to make sure you get credit for paying rent on time, you have a chance to have positive information added too!
As long as you are paying during the grace period that your landlord includes in your lease agreement (some give you up until the fifth of the month to pay your rent), your payments will be reported as on time and you can build positive credit.
Misconception #2: "I don't know how to submit the information to credit bureaus."
The first thing you should do is ask your property management if they can report your rent payments to help build your credit — there's a chance that your property manager might do this for you. If he or she already uses RentTrack to collect rent, all you have to do to get that information added to your credit report is opt in and verify your identity.
But even if your landlord isn't signed up, you can still choose to have your own rent reported through CreditPop, a division of RentTrack designed for renters to get the credit they deserve for their rent payments, even if their landlord doesn't use RentTrack.
In both cases, we ask for a driver's license or other official form of ID (to confirm your identity and ensure your privacy) and answers to a few verification questions provided by credit bureaus. This lets us prevent anyone else from trying to sign up with your name or personal info. Then, we can connect your rent payments to your credit profile.
Keep in mind that only a certified rent-reporting agency can report your rent payments to credit bureaus, because there is a very tough process of verification involved to make sure all of your information is totally private and secure. RentTrack pioneered rent reporting to all three of the top credit bureaus (Experian, TransUnion, and Equifax).
Misconception #3: "My information won't be private or secure."
It's understandable that you're concerned — we hear about privacy and security issues in the news all the time. Perhaps you don't want to report your rent because you don't want bureaus to have your data.
But, the truth is, credit bureaus already have your data, because your creditors and lenders already report that information to them all the time. That's one reason why there are laws to protect consumers, like the Fair Credit Reporting Act.
At RentTrack, we're trying to make things even more fair by giving tenants the option to report positive information too.
Knowing that, it makes sense for you to take control of the positive information you have to show you're a good credit risk, and get it properly reported to credit bureaus.
As we've mentioned earlier, in order for companies like RentTrack to get certified, there's a strict verification process the potential credit reporting company has to go through to ensure that each credit bureau's requirements are met. In our case, it took more than half a year of vetting and approvals with each of the top three credit bureaus to become a certified rent reporting agency. We did this in large measure by putting in place and maintaining incredibly high standards when it comes to privacy and security. (You can read more about the lengths we've gone to and security systems we have in place here.)
Misconception #4: "It's too expensive to have my rent reported."
In some cases, rent reporting may be paid for by your housing provider or another nonprofit, so that option is well worth looking into. If having your rent payments recorded is free, then there's only upside in it for you. And even if you sign up on your own, the cost is minor — less than you'd pay for one fast food meal — but the reward may be major. Over time, a high credit score can save you tens of thousands of dollars a year (reportedly up to $83,000!) because you'll qualify for lower interest rates on mortgages, credit cards and other expenses.
Misconception #5: "It's a lot of work for not a lot of pay-off."
You only have to get set up with a rent reporting company once. But from then on, all you have to do is pay your rent on time and you'll get credit for it. And the pay-off can be significant in so many ways. From something relatively small, like being able to secure a cell phone plan without a deposit, all the way to qualifying for a mortgage or auto loan someday, there are many significant benefits associated with establishing good credit.
Without knowing how easy and beneficial it is to use your rent payments — money you'd spend monthly anyway — to build your credit without taking on debt, it's understandable that it may seem too good to be true. But even lawmakers agree that for the millions of Americans that lack credit scores or have scores that are too low to get affordable credit, this is one of the best ways to level the playing field.
In a recent report from Credit Builders Alliance on a three-year pilot program that tested rent reporting for people living in affordable housing as a way to help them build credit, nearly 80% of residents saw their scores increase by at least 23 points. And 100% of those who had no score before participating in the program ended up with a good credit score.
Ask your landlord for more details, or let us know if you have questions about using your rent payments to build your credit.