Experts say here is how rent can make or destroy your credit

Paying rents usually does not affect your credit, but in some circumstances it can. The results can be important.

Rent doesn’t show up in your credit history, experts say. This is because landlords usually don’t report payments to the credit department, as does credit card issuers and other lenders.

When rent payments are displayed, it is generally because a tenant, or real estate manager, has enrolled in the so-called rent reporting program on behalf of the tenant. These services are intended to provide tenants with the opportunity to expand their credit history through on-time rent payments.

“The good news is that a lot of them are there,” said Matt Schultz, chief credit analyst at Lendingtree. “It’s certainly been a growing space over the past few years.”

However, if you keep up, these services can also hurt your credit, experts say. And whether you report your rent to the bureau or not, debt collection efforts to pay unlazy or unmet rent can also be a black mark on your credit.

The Consumer Financial Protection Bureau began accepting complaints regarding rental debt collection in August 2023. Since then, there have been around approximately 10,960 consumer complaints regarding US rental debt collection per CFPB data.

If you are a tenant or are planning to do so, here is what you need to know.

Reporting rent can help people, especially those who “untrustworthy” or have no credit history. If you’re looking for ways to expand your credits, such a platform can be a useful tool.

Those who register usually see their credit scores increase. According to the 2021 Transunion report, if rent payments are included in the credit report, consumers will achieve an average growth rate of 60 points in their credit scores.

But if you are late in paying rent, your activity can also be reflected in such tools, and your score says, experts say.

Additionally, rent reporting services are not always free and do not always report data to all three major credit bureaus, experts say. For example, Rental Karma, a rent reporting platform, charges $8.95 a month after an initial setup fee of $75. The service reports data to two of three stations: Transunion and Equifax.

Chi Chi Chi Wu, a senior attorney at the National Center for Consumer Law, a Boston-based nonprofit, says that even if you are not using your rent reporting service, your landlord has the ability to report late or unpaid rents to the Credit Bureau via the debt collection service.

She said that if the tenant leaves the unit and the landlord claims that the tenant is owed rent or damages, the rent delinquency may appear on the credit report. The landlord in this situation will send the amount to the debt collector.

According to a 2014 report from the CFPB, when a paid or unpaid collection trade line (a past suspected account listed in the consumer credit report) is added to a credit report of at least $100, if a score above 680 points is 40 or more and a score above 780 points is over 100, it is added, citing the FICO 8 scoring model.

However, the impact of the collection trade line depends on a variety of factors, including current scores, score models, and even recent collections, experts say. If paid, it could be less influenced.

“If the debt collection items are months, it’s going to hurt a lot more than it was a few years ago. It’s very diverse,” Wu said.

According to experts, here are some key factors to keep in mind as to how your track record as a tenant affects your credit history.

1. Do you actually need that? See if you really benefit from reporting rent payments, Wu suggests. Experts point out that it is a more advantageous tool for people with weaker credit history.

“This isn’t the same value for everyone,” said Adam Russ, director of financial services at the American Consumer Federation.

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“For some people, their trust may already be good. So, that doesn’t make a big difference, but it can be very important for others, especially those who don’t have credit history or thin files,” said Last.

2. Does the service cost anything? Some rent reporting services are free, and according to apartment listings, you may also be charged a fee ranging from $6.95 to $9.95 a month. Some services charge a one-time registration or setup fee that can cost between $25 and $95. Check if it comes to you at an additional cost or if your landlord covers any of the fees.

3. Does the service report to all three major stations? Schulz said it makes sense to ensure that the rent reporting service reports payment history to all three credit bureaus. Services may be reported to one or two stations, not all three.

“That’s not what people think all the time,” he said.

4. What data does the service report? Experts say some people share rent payments on time with credit viewers, while others include slow pay activities. And even if they only report positive history, if you pay on time for eight consecutive months and suddenly your records go blank, future landlords and lenders may be able to connect the dots, Wu said.

And don’t forget that “life will happen,” she said. “Look at all these federal employees who are now losing their jobs. They didn’t think they were going to be late for rent either, they were doing a safe job.”

The affected tenants may have inaccurate information reported to the Credit Bureau. From August 21st 2023, there were approximately 1,697 complaints per CFPB data regarding false statements or expressions regarding rent-related debt collection.

If you understand that there is inaccurate or incorrect information about your credit report, you have the right to challenge that information under the fair credit reporting law, credit reports, tenant screening reports and laws governing background checks, Wu said.

“You have the right to object to it,” she said. However, it should be noted that it has historically been difficult to challenge reporting errors involving debt collectors, Wu said. Creditors usually get the debt collector aspect.

“It’s like a defendant who always calls out the home team or a judge who always controls the judge for the judge,” she said.

Except for medical debt, Wu said that even if he finally decides to pay the collection items on a credit report, it won’t go away anytime soon – that appears to be “a fee.”

Under the provisions of the Fair Credit Reporting Act, adverse information such as debt collection may remain in your credit report for seven years.

In 2022, three credit bureaus announced voluntary changes to remove medical obligations from credit reports that include medical obligations of less than $500 and outstanding obligations, Wu said.

Otherwise, items will remain as “din” in your credit report even if you pay.

“So paying it back might not solve the problem,” she said. One thing you can do is to “pay” or pay the debt collector and kick the collection line from your credit in return. If you decide to go through this route, please make sure you enter into a written contract, Wu said. You may want to talk to a legal expert about this idea.

Like your landlord, if you are trying to close your lease early, if you get a landlord “OK”, you will get a contract and details in writing regarding your outstanding balance or obligations.