Establish or build credit with a rent reporting service ~ Credit Sesame

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Credit Sesame discusses the value of a rent reporting service in establishing or building credit.

The hardest part of building a credit record can be getting started. How do you show you can use credit responsibly when many lenders won’t give you credit until you have a credit history? Rebuilding damaged credit can also be challenging if you cannot get credit to demonstrate responsible credit behavior. A newer trend that may help change this dynamic is the inclusion of rental payments in credit histories. This practice is catching on and already positively impacting credit scores.

Reporting rent payments to credit bureaus

TransUnion began including rent payments in credit reports in 2016, and now all three major credit bureaus (Equifax, Experian and TransUnion) do it. While most landlords still don’t report tenant payments, the number that do is rising fast. TransUnion recently reported that the number of property managers reporting rent payments rose by 33% in the past year.

TransUnion also reported that 84% of tenants whose payments were reported to credit bureaus found that their credit scores had improved. That’s a good reason to include rent on credit reports as a credit-building tool.

Relationship between rent and credit

Perhaps it is fitting that rent should factor into credit scores because many landlords look at credit scores when deciding who to accept as tenants. Having your rent payments reported is a good thing if you’re consistently on time with your payments. Rent payments already keep the roof over your head. Why not have payments you are making already factor into your payment history?

Can a rent reporting service help build credit and increase credit availability?

Advocates for broader credit access hope that including rent payments on credit reports may help more people qualify for credit. How realistic is this hope? It’s important to acknowledge some limitations.

Not all landlords report payments to credit bureaus

One study found that fewer than 5% of adults living in rental properties had their rents included in credit reports. Rent reporting may be fast-growing, but it’s still the exception rather than the rule. However, a rent reporting service, such as Credit Sesame’s, streamlines and automates the process by capturing rent payments made in a linked bank account.

Rent isn’t a part of all credit scores

Not all credit scores use this information, even when rents are reported to credit bureaus. For example, traditional FICO scores do not, though newer versions do. VantageScore, an alternative to FICO scores promoted by the three major credit bureaus, also uses rent information.

Lenders focus on information specific to their line of business

Lenders are most interested in a credit history that’s relevant to the type of lending they do. For example, payments on secured debt like mortgages and auto loans are much more reliable than payments on unsecured debt like credit cards and most personal loans. So, a credit card company may be most interested in a consumer’s performance with unsecured loan payments. Rent payments are something of a grey area. Payment is not guaranteed by collateral, but renters have something important at stake (i.e., not being evicted) to encourage payment.

As credit scores evolve, lenders recalibrate their standards

Credit scores are important to lenders to the extent they correlate with responsible payment behavior. Expecting more or better offers simply due to raised credit scores may be wishful thinking. New reporting practices like rent reporting might contribute to raising consumer credit scores, but it is important to remember that it is just another way of building payment history. Late or missed rents are also reported, potentially reducing credit scores. Lenders may adjust their credit score thresholds as more consumers take advantage of rent reporting.

Opportunities to build credit from scratch – or rebuild

Here are some ways a person can build credit. These apply whether you are just starting to use credit, or want to rebuild your history after some bad experiences:

  1. Have rent payments included in your credit report. This practice is far from universal. So, when looking for an apartment, ask whether the landlord or property management company reports payments to credit bureaus.
  2. Student loans. For all the complaints about student loans, government-backed loans make credit available to millions of young borrowers who otherwise wouldn’t qualify.
  3. Open a credit builder account. A Sesame credit builder account is an option with Sesame Cash, Credit Sesame’s prepaid debit card. Sesame Credit builder can help you build credit with your everyday debit purchases.

Remember that establishing or building a credit history is just the start; you still must use credit responsibly to maintain your credit score.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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