The New York Times
If you’re a young person just starting out in the working world, you may not have much of a credit history, especially if you don’t have student loans or have never had a credit card.
That can make it difficult to get a loan when you do eventually want to borrow money to buy a car or a home.
But if you don’t want a credit card because you’re leery of debt, or, you lack enough of a credit history to qualify for one, your record of paying rent on time may offer an alternative way to enhance your credit report.
Experian, one of the three major credit reporting bureaus, includes on-time rent payments as part of its credit reports. It also factors such rental data into VantageScore credit scores, a competitor to the widely used FICO credit score. (Credit scores aim to summarize your credit report with a single three-digit number.)
Experian uses only “positive” rental information in its credit reports and scores, said Brannan Johnston, vice president and managing director of RentBureau, Experian’s apartment data service. Experian doesn’t include late rent payments, he said, because the rules differ from the typical account reported to credit bureaus; rent may be considered late if it is just five days past due, compared with 30 days for credit cards. Experian may eventually include negative rent histories in credit reports, he said, “But it’s not a priority right now.”
A poor rental payment history could affect your credit report otherwise, he noted, if your account was referred to a collection agency.
Because only positive rental history is considered in Experian reports, Mr. Johnston said, it tends to increase your credit score. You’ll benefit the most, though, if you were previously ineligible for a score — for example, if you’re a recent college graduate or an immigrant who hasn’t used the traditional financial system. If you already have a lot of other accounts in your credit file, he said, adding rental data will have less impact.
But your full rental history, including late payments and bounced checks, may be included in separate RentBureau reports provided to property managers for the purpose of evaluating tenants, Mr. Johnston said.
Experian’s rent information comes from data reported to RentBureau by large apartment chains, as well as by start-ups like William Paid, an online rent payment service that works directly with tenants and smaller landlords.
William Paid lets tenants “opt in” to have their rental history reported to Experian’s RentBureau, said Jeff Golding, chief executive of William Paid, so tenants who consistently pay on time can get credit for doing so if they choose. Roughly a third of the service’s tenants have payments reported, he said (but he declined to disclose its total number of users).
Other fledgling companies also offer to report rental history to help you build credit, but they may not necessarily send data to the big credit bureaus used by many lenders. Rental Kharma, for instance, helps consumers report up to two years of rental payment history to MicroBilt, which provides services including alternative credit reporting, said Bill Butler, co-founder of Rental Kharma. Mr. Butler said MicroBilt’s data is used to generate FICO Expansion Scores, which are used for consumers who don’t qualify for a traditional FICO score.
Here are some questions to consider about using your rental history to build credit:
■ Do all three major credit bureaus include rental data in their credit reports?
Experian says it is the only national credit reporting agency that adds positive rental data to its credit reports. (That means you won’t benefit if the lender you choose happens to obtain credit reports from another bureau, noted John Ulzheimer, a consumer credit expert.) A spokesman for Equifax confirmed that it did not incorporate rental information into its credit reports or credit scores. TransUnion didn’t respond to a request for comment.
■ Do traditional FICO scores incorporate rental payment information?
FICO does not include rental information in the formula for its flagship credit score, said Anthony Sprauve, senior consumer credit specialist with FICO. Still, he wrote in an email, “It is something that FICO is looking at.”
■ Are there potential drawbacks to having rental data included in credit reports?
Persis Yu, a staff lawyer at the National Consumer Law Center, said a possible pitfall of broadly including full rental histories in credit reports was that it might discourage tenants from legally withholding rent to obtain services from their landlord — for instance, to force needed repairs at a rental property — out of fear that they will be reported as delinquent.