Saturday, August 9, 2014

Why Don't Rent Payments Show Up on Your Credit Report?

Rent payments don't usually show up on credit reports.
When it comes to credit reporting, renters get the short end of the stick. This is very ironic when you consider that, if you buy a home, your mortgage becomes of the most important tradelines on your credit report. Your ability to consistently pay your housing debt on time shows lenders that you are financially responsible and a good lending risk. Unfortunately, you can be the most reliable renter on Earth and your credit will remain unaffected because, with few exceptions, rent payments just don't show up on your credit report. 

Why Don't Landlords Report Rent Payments to the Credit Bureaus?

In order for a creditor to report debt on your credit report, it must have a credit reporting contract with the credit bureau. Unless you've been a victim of identity theft, the credit bureaus won't share your information amongst themselves. This means that if a landlord wants your rent payments to appear on all three of your credit reports, the rental company must report the debt to each credit bureau individually. 

The problem that arises here is that, in order to make these reports, the landlord must apply for and be accepted into each credit bureau's reporting program. This isn't as simple as merely paying a fee and installing credit reporting software. Each credit bureau requires an on-site inspection (to ensure that your business actually exists), a monthly membership fee (not cheap, not cheap at all..) and special credit reporting software (also not cheap). 

The up-front costs and regular fees associated with credit reporting are pricey and, when multiplied by three (each credit bureau has its own fees and requirements), can prove too expensive for your average landlord to handle. Unlike banks and credit card companies, apartment complexes and rental companies generally aren't big conglomerates and the high cost of a credit bureau memberships cuts too deeply into their profit margins to be worthwhile. 

Can I Ask My Landlord to Report My Rent Payments to My Credit Report If I Pay the Fee?

I hear this question a lot. You can ask your landlord to report your rent payments to the credit bureaus, sure, but don't expect it to actually happen. A company isn't free to report singular accounts to the credit bureaus for a fee. It's all or nothing. Either your landlord jumps through the hoops of fire that are required to become a full-fledged information provider or not. Without a reporting contract, the landlord can't insert any information on your credit report. 

Note: Experian's RentBureau program is an exception to the rule above. If your landlord participates in the program, he/she can submit the payments you make to RentBureau. A Rentbureau membership is much cheaper than a standard credit bureau reporting membership--making it more accessible for landlords. The best part? Payments submitted to RentBureau appear on your Experian credit report and influence your credit scores. 

Rent Payments Don't Help Build Your Credit Scores, But They Can Destroy Them

As if shelling out a big chunk of your income and not getting credit for it (bad pun, I know) isn't bad enough, if you miss enough rent payments or move out without paying any remaining rent or fees, your landlord can sell the debt to a collection agency or sue you. Most consumers know how damaging a collection account is to their credit rating, and fear is a powerful motivator. Collection agencies have a strong incentive to maintain credit reporting contracts, so if your landlord sends your unpaid rent to collections, your credit scores will take a hit as soon as the debt collector reports your account to the credit bureaus. 

You'll also end up with damaged credit if your landlord decides to file a lawsuit against you to collect unpaid rent and/or fees. Winning the lawsuit nets your landlord a civil judgment which it can then use
You can be sued over unpaid rent.
to garnish your wages and bank accounts, among other things.

Having your wages docked and your bank accounts levied is extremely frustrating, but the longest lasting consequence of the judgment comes in the form of credit damage. Civil judgments appear on your credit report and are just as damaging as a collection--sometimes even more so.

Rent Payments May Appear on Alternative Credit Reports

Your credit files from Experian, Equifax and TransUnion aren't the only credit reports out there. For young people just starting out or those with limited credit histories, alternative credit reports provide lenders with a way of assessing a person's risk when that person lacks a traditional credit report and scores. Examples of items that help establish an alternate credit file include: 

  • Rent payments
  • Insurance payments
  • Utility payments
  • Cell phone payments 
  • Child support payments

In the wake of the recession, many debtors have been left with few options for salvaging their devastated credit scores. If their rent showed up on their credit reports, it could do just that. Rent is just as reliable an indicator of an individual's responsibility level as a mortgage. In recent years, demand has risen significantly for the credit bureaus to include rent payments in credit score calculations. Although your rent payments don't show up on your credit reports right now, the credit bureaus are working to establish programs, such as Experian's "RentBureau", that will take your rent payments into consideration when determining your credit scores.

Related Posts:

How Landlords Pull Your Credit Reports and Scores

Do Apartment Credit Checks Hurt Your Credit Scores?

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