By Ana Teresa Solá —
CNBC
While on-time rent payments typically don't help improve credit scores, a growing number of so-called rent reporting services are trying to change that.
These services track tenants' rent payment habits and report them to one or several of the big credit bureaus (
Equifax
,
Experian
, and
TransUnion
) with the goal of helping them build credit and potentially improve their score.
[Interest to buy a house with a mortgage will fall below 6% this year, according to analysts]
But not all of these services work the same and some may have less value for tenants.
An important detail to consider before signing up, according to Matt Schulz, chief credit analyst at LendingTree, is whether your payment history goes to all three bureaus.
“It's important for people to understand that you don't have just one credit score,” he said.
“You just don't know which credit agency report a lender will use to get our information.”
How to count the rent payment?
This week, real estate site Zillow Group launched a new feature for reporting rent payments.
Tenants who pay through the site can now choose to have their on-time payments reported to Experian, one of the three major credit bureaus, at no cost to the tenant or landlord.
Rent payments can help boost your credit score.Joe Raedle/Getty Images file
For a tenant to
use the Zillow feature
, their landlord must be a Zillow Rental Manager user and have agreed to receive payments through the company.
“(This new feature) is aligned with our goal of providing credit-building accessibility in the rental space.
“It’s a really positive step in that direction,” said Michael Sherman, vice president of rentals at Zillow Group.
While Zillow is the first real estate marketplace to report rent payment data to a credit agency, it joins a number of different reporting services already available to consumers.
There are many services renters can consider, including some that are free, like
Piñata
.
And there are those that come with service or transaction processing fees, like
Rental Kharma
, which charges $8.95 a month after an initial $75 fee.
There are also services aimed at landlords that offer rental reports to tenants, including
ClearNow
,
Esusu
and
PayYourRent
.
Landlords generally assume the cost of these programs, but there may be processing fees depending on how you make your rent payments.
Very helpful for those who have “invisible credit”
Nearly 50 million Americans have no usable credit scores, according to a 2022 fact sheet from the REACh Project, or Roundtable for Economic Access and Change, of the Office of the Comptroller of the Currency.
Having “invisible credit” can affect a person's ability to qualify for loans and impact the interest rates and terms they are given when they apply for credit.
When rent payments are included on credit reports, consumers see an average increase of nearly 60 points in their credit score, according to a 2021 TransUnion report.
Other payment reporting programs, such as
Experian Boost
,
StellarFi
, and
UltraFICO
, have similar goals as rent reporting services, but with different types of payments.
They allow users to build credit based on alternative metrics, such as banking activity and payments for
streaming
services , electricity bills, and mobile phone plans.
Talk to your landlord before signing up for a rent reporting service on your own.
This may be open to registration, as a benefit to its tenants.
While “people are creatures of habit and don't always embrace change,”
this form of credit building can help a landlord stand out in a competitive rental market
, Schulz said.
“It would be an important added value;
building credit is a big deal and if you are someone who can help people build credit, they may find it a little more interesting,” she added.
The ideal way to get more out of it
Before signing up for a rent reporting service, it is important to understand which office or offices the company in question sends its reports to.
It may not be worth it to use a service that sends rent payment reports only to a single office.
“If a rental reporting service only provides your information to one of [the big three] bureaus, and the lender you get your auto loan from uses a different credit bureau, the benefits that could and should come with that tool may not be enough,” added Schulz.
Ideally, the rental reporting company should provide the data to Equifax, Experian, and TransUnion.
“People hear about three credit bureaus, but they don't understand that their three credit reports are different reports and that different companies report to different agencies,” Schulz concluded.