You've avoided loans and credit cards, but you've always paid your rent on time. Shouldn't you be rewarded then for avoiding the risks that come with borrowing when you do need a car loan or mortgage?
Not necessarily. When it comes to traditional credit scoring, your credit reports feature your use of credit, and all those on-time rent payments won't appear, as they don't involve a credit line. In fact, an estimated 64 million people in the U.S. are excluded from credit, not because they have a poor credit history, but simply because they have little or no borrowing track record, according to the credit rating agency Experian.
A few services promise the chance to change that, offering to track your rent payments and get them incorporated — albeit in a limited way — into your credit scores. Here's how they work for those who fall through the cracks of traditional credit score models.
Rent tracking history
Experian started the trend of tracking rent payments a few years back with the 2010 acquisition of RentBureau, a service that collects rental data from more than 3,000 large apartment communities, covering about 9 million renters. That data is now being incorporated into the VantageScore, Experian's proprietary credit scoring model.
“Many people pay a lot in rent, but until now they haven't got credit for that,” says Brannan Johnston, vice president and managing director, Experian RentBureau. “We are very committed to continue to grow this service, because we think it's really important for people to get credit based on their rental data.”
More than half of renters live in individual landlord situations, however, and not in large apartment communities. As a consequence, Experian is adding rental payment data from rent payment processors, such as the rent collection service ClearNow.
“Before, we were working only with apartment communities to get data automatically from those,” Johnston says. “Now, we're expanding to other rent payment services, and we have a pipeline of about half a dozen other payment processors that we're negotiating with.”
So exactly how much do rental payments count towards your credit score? According to Johnston, rent payments get weighted similarly to payments on a car loan on a consumer's VantageScore.
Rent tracking options
As the interest in making rent payments count towards credit scores increases, more companies are likely to offer services to individual renters and landlords. Here's an overview of three of the leading services currently available, what they cost and how your rental payment data are counted towards your credit score.
ClearNow is an online rent collection service targeting smaller, individual landlords and property managers. Landlords can sign up at ClearNow.com to have rent automatically debited from tenants' checking, savings or prepaid card account. Through its collaboration with Experian Rentbureau, ClearNow lets tenants whose landlords are enrolled in the service have their payment history reported to Experian RentBureau.
Cost: There is no cost to the tenant. Landlords pay a monthly fee of $14.95 for the first tenant and $2/month for any additional tenants enrolled.
Credit scoring: The rental payment history becomes part of The Experian VantageScore and the Experian's PLUS Score.
How to enroll: Individual consumers cannot enroll directly in the service, but can encourage their landlords to enroll in ClearNow. For many landlords, the prospect of receiving automatic deposits of rental payments may be worth the monthly fee.
First started in mid-2010 and re-launched in February 2012, WilliamPaid is an online rent payment system targeting individual consumers, which tracks and verifies rent payments of individual consumers enrolled in the service.
Cost: The basic service is free for rent payments automatically deducted directly from a bank account (a small fee applies for rent collected via a credit card). Users who want their rent payment to be reported pay an additional fee of $5 per month. In addition, consumers pay extra fees if they want to retrieve the alternative credit report offered by WilliamPaid.
Credit scoring: The information collected by WilliamPaid becomes part of the alternative Payment Reporting Builds Credit (PRBC) Consumer Report, a service offered by MicroBilt, the parent company of WilliamPaid. Rent payment information also gets counted toward the FICO Expansion Score, a score designed to capture nontraditional credit data, such as rent, utilities and other recurring payments for consumers with “thin” credit files. The FICO Expansion Score is offered by MicroBilt as well, in collaboration with FICO, the parent company of FICO scores.
How to enroll: Consumers can enroll directly at Williampaid.com.
RentReporters is an online service that tracks and verifies the rent payments of enrolled tenants.
Cost: Service costs $9.95 per month for rental payment tracking and verification. You can also pay $34.95 to have RentReporters verify up to two years of past rent payments you made before signing up.
Credit scoring: Your rental payments get reported to PRBC, and can also be counted toward your FICO Expansion Score.
How to enroll: Sign up at RentReporters.com.
Does it work?
In addition to services focusing specifically on building credit with rent payments, several companies, such as eCredable, offer to build alternative credit scores through generic reporting of a range of payment data, including rent, utilities, and other recurring payments. Apart from ClearNow, however, none of the services yet report to mainstream credit reporting agencies, such as Experian, Equifax, or TransUnion.
So, will rental reporting help qualify you for a loan down the road by improving your credit score?
According to Mike Sullivan, director of education for the credit counseling agency Take Charge America, the reason traditional credit scores are so popular is that the reliability of credit scores, particularly FICO scores, is well documented. Lenders know that consumers rated in a certain score range will repay loans with a great deal of reliability.
In contrast, fewer lenders will give credibility to a credit score that doesn't have the same track record. The PRBC alternative credit score is known by relatively few lenders (although some may pull alternative credit reports upon request). The Experian VantageScore, which incorporates the data from ClearNow and Experian RentBureau, is quite well known, but even so, that score is not as widely used by lenders as FICO scores.
Still, while rental reporting is still in its infancy, it can't hurt, particularly if you have no use of credit on your reports. However, Sullivan recommends, to really build a solid credit history, don't rely on that service alone, but take other steps to build your credit record as well.