Homeowners can wreck or raise their credit depending on how well they manage their mortgage, but what about renters?
Not so long ago, renters only faced credit problems for serious rental offenses and paying their rent on time didn’t help their credit scores, but that has changed in recent years. Now, renters have more to look out for when it comes to their credit histories.
Breaking the Lease
When you sign a lease you’re agreeing to pay the rent in full each month through the remainder of the lease. If you move out early and skip out on the rest of the rent payments, it could come back to haunt you.
“Property managers may send unpaid rent amounts to a collection agency, which then reports the unpaid debt to a credit reporting company,” said Emily Christiansen, director for Experian RentBureau. Once the collection appears on your credit history, it will stay there for seven years and you’ll see a drop in your credit score.
You could also face a lawsuit if you skip out on the lease or cause large damages to your rental, which could impact your credit score. Once your former landlord files a civil suit against you it becomes a public record, which is included in your credit history.
In the past, paying your rent on time and staying on your lease helped you build a good reputation with landlords but did little to improve your credit score. Experian, one of the big three credit bureaus, changed that for many renters in 2010 when it started recording positive rental history through Experian RentBureau.
“The positive rental history is included as part of the standard Experian credit report and may be incorporated into certain credit scores, such as VantageScore and Experian’s PLUS Score,” Christiansen said.
Unfortunately, just being a renter doesn’t necessarily mean you’re building a credit history. Currently, Experian RentBureau is the only major credit bureau reporting rent payments and landlords have to be signed up with a rental payment service working with Experian RentBureau. If your landlord or property manager company isn’t currently with the program, you’ll likely only see an effect to your credit history if you break a lease or get involved in a civil suit with your landlord.
Boosting Your Credit Score
However, you might be able to improve your credit score on your own.
“Experian does not add late rent payments to credit reports,” Christiansen said. “Only positive, paid-as-agreed rental payments are added to the Experian credit report.” So having your timely rental payments reported could boost your Experian credit score.
To do so, start by ordering a rental history report through Experian RentBureau to see if your landlord is already reporting your payments. If not, you can sign up with an electronic rent payment program working with Experian, or ask your landlord to participate.
Currently, Experian RentBureau partners with the rental payment services WilliamPaid and ClearNow. Once you or your landlord is signed up with Experian RentBureau through one of these payment services, you’ll need to opt-in to start having your rental payments reported. From there, just pay your rent on time, stick to your lease, and you’re well on your way to building your credit reports.