Does paying rent build credit?

There are many ways to build credit. And making on-time rental payments could be one of them. If those payments are on time, reported to credit bureaus and considered by credit-scoring formulas, that is. 

This article will explain more and tell you how a positive rental payment history could make you look more favorable to potential lenders. But it’s also important to remember that building credit also means making responsible financial decisions elsewhere to avoid negative information in your credit reports.

There are a few ways your rent payments could affect your credit. One is an untraditional way, through something called alternative data. Another has to do with the method you use to pay your rent. And a third, which is always the case, has to do with late and missed payments. Those negative things could affect your credit, just not in the way you might want them to. And being late could also lead to additional costs and fees.

When it comes to credit, the Consumer Financial Protection Bureau (CFPB) classifies rent payments as alternative data. 

The category gets its name because it involves “information used to evaluate creditworthiness that is not usually part of a credit report.” Other examples include cellphone payments, cable and internet payments, and bank account information.

Alternative data isn’t as common as traditional factors used to judge credit. But federal agencies like the CFPB have recognized its potential and encouraged companies to use alternative data responsibly.

There’s plenty more you can explore about alternative data. But for now, just remember it’s part of what makes it possible for on-time rent payments to help your credit. 

Using a credit card to pay rent could also affect your credit. But that depends on other factors too, including whether you pay your credit card bill on time and how much of your balance you pay off. 

If you’re able to pay with a card, you might be charged additional processing fees. And if you don’t pay off the credit card later, it could end up costing you more in interest. 

No matter how you pay your rent—cash, check or charge—it’s important to stay current with what you owe. If you’re having trouble keeping up with rent payments, consider what rent relief options might be available.

When they’re reported, rent payments appear on your credit report as something called a tradeline. That’s just an industry term for the account information on a credit report, according to the CFPB. Tradelines can include account information such as payment history, account status, account activity and account history.

The three major credit bureaus—Equifax®, Experian® and TransUnion®—say they include rental payment tradelines in their credit reports. But that’s only if they receive the information. You can read more in the next section about how that happens. 

You can monitor your credit with CreditWise from Capital One. It allows you to access your TransUnion credit report and VantageScore 3.0 credit score without hurting your score. Plus, it’s free for everyone, whether you’re a Capital One customer or not.

Assuming rent payments are being reported to credit bureaus, that information could affect your credit scores in various ways. There are multiple credit scores. So two big factors are what credit-scoring company calculated the score and what formula, called a credit model, they used to do it.

The CFPB says credit scores are typically based on factors like payment history, number and types of balances, credit use and the age of credit accounts. 

But there’s a catch when it comes to rent payments: Not all scoring models use them. Some do, such as VantageScore® 3.0 and 4.0 and FICO® 9. But FICO 8, which FICO says is still its most popular scoring model, does not. 

And remember, ultimately all credit decisions are up to individual lenders.

If your rent isn’t reported to a credit bureau, it won’t show up on your credit report. If you’re good about paying your rent on time and think it could help your credit, you might start by asking your landlord or property manager if they report rental payments. 

Unfortunately, if your rental payments aren’t being reported, you can’t just do it yourself. But there are rental reporting services that might be able to help. Some even have direct partnerships with the credit bureaus.

But be sure to do your research or talk to a professional before you sign up. These companies can charge for their services, and you’ll want to know what information is being reported and who it’s being reported to.

It’s always a good idea to stay up to date with bills—rent or otherwise. Checking with your landlord to understand how late rent payments are handled is a good first step to learn more.

Depending how far behind you are, your landlord could use a debt collector. And that could wind up on your credit report if the debt collector makes a negative report to the credit bureaus. You can learn more about how debt collections work from the CFPB. 

Falling too far behind could also put you at risk for eviction. If you’re having trouble, there may be government rental assistance available.

It takes time, effort and responsible financial behaviors to build credit, and there are many ways to do it. If you’re trying to build credit, don’t forget about some of the more traditional approaches to building credit. There are even ways to build credit without a credit card.

And if you want to get an idea where your credit stands today, you could use CreditWise from Capital One. It’s free for everyone, and it has loads of features to help you monitor your credit. Best of all, using it won’t hurt your credit score. You can also get free copies of your credit reports from each of the major credit bureaus by visiting AnnualCreditReport.com.

So now you know how paying rent on time could help you build and maintain credit. It’s kind of funny when you think about it: Today’s rental payments could be a factor that helps you in the future when you try to get a new apartment or buy a house of your own.