Your monthly rent is one of the most important bills that you pay each month. All those timely rent payments should count for something, right?
In a sense, renting an apartment is like a 12-month loan that you pay back in monthly installments. At least that’s the justification landlords use when they check your credit report before renting an apartment to you. From that perspective, timely rent payment should help your credit score, especially since late rent payments and eviction can completely wreck your credit score. This would not only ruin your ability to rent another apartment, but also make it harder to get approved for credit cards and loans.
How Applying for Rentals Affects Your Credit Score
Many landlords pull your credit report when you're approving your rental application. The hard inquiry that comes from a credit check can affect your credit score.
Inquiries are 10% of your credit score, but fortunately, apartment hunting may be treated the same as mortgage or auto loan rate shopping. In an email to The Balance, a FICO executive confirmed that multiple identifiable tenant screening related inquiries are included in the special FICO Score inquiry treatment logic. In other words, multiple apartment-hunting inquiries are treated as just a single inquiry as long as they're completed in the same timeframe.
Not all landlords or leasing agents pull your credit information to qualify you for a rental. Applying for an an apartment won't hurt your credit if there's no credit check in the process. The application also won't hurt your credit score if the landlord uses a service that does a soft credit check. You can ask the landlord for their process to find out whether there's a credit review involved.
Are Rent Payments On Your Credit Report?
More recently, some apartment complexes have begun using a variety of services to report rent payments. All three major credit bureaus offer landlords some rent reporting capabilities. Experian and TransUnion both offer services to landlords and Equifax has partnered with third-party rent reporting platforms to report rental information.
There are a few third-party companies that work with consumers directly to collect and report information on rent payments: ClearNow, PayYourRent, Cozy, and RentTrack are a few examples.
How Rent Reporting Helps Your Credit Score
While there has been some progress in credit reporting of timely rent payments, it’s not widespread. If you rent from a smaller company or an individual landlord, it’s less likely that your rent payments will be reported to the credit bureaus.
Even when rent payments are included on your credit report, they’re not guaranteed to help your credit score. According to FICO, only a small number of consumers see a significance in their credit scores after having rental added is added to their credit report.
Even if rental data doesn't make a major difference in your credit score, it can help if a landlord manually reviews your credit report looking for positive tradelines.
Do Late Rent Payments Affect Your Credit?
On the downside, renting can hurt your credit score in some instances. For example, if you're late on your rent payments, break your lease, get evicted, or fail to pay any move out fees and the landlord reports an unpaid balance to any of the three credit bureaus, that will hurt your credit score. Past due rental balances can also be sent to a collection agency who could report the account on your credit report.
Your credit report might show an unpaid balance that resulted from an eviction, but the actual eviction will not appear on your credit report. Evictions become a public record in your credit report if your previous landlord sues you and a judgement is filed against you.
Using a Credit Card to Pay Your Rent
You can use a credit card to pay your rent and boost your credit score in an indirect way. Open a credit card and use it to pay your rent (if your landlord accepts credit cards as a payment method), then pay your credit card balance in full each month. The timely credit card payments will help boost your credit score.
Some landlords may charge a processing fee if you use a credit card to pay your rent.
Are Cosigners Affected By Rent Payments?
Renters with bad credit or no credit may need a cosigner to get approved for an apartment. It's important to know how cosigning will affect your credit before agreeing to put your name on the line for an apartment you won't live in
Cosigning a rental agreement will impact your credit the same as if you were the sole tenant of the apartment, even if you're not living in the apartment you cosigned for. When there's a credit check for the application, the cosigner's credit is impact. Any payment reporting will be included on the cosigner's credit report as well.
A debt collection resulting from non-payment will impact the cosigner's credit, even if monthly payments weren't regularly reported to the credit bureaus. Many landlords don't contact a cosigner until the balance is seriously past due. Cosigners have to be even more diligent about making sure monthly rent payments are made on time so their credit isn't negatively impacted by late rent payments.
Timely rent payments may help your credit if your landlord subscribes to a credit reporting service or if you pay for a third-party reporting service. Late payments, on the other hand, often only affect your credit if a severely late balance is reported by a collection agency.
Frequently Asked Questions (FAQs)
What credit score is needed to rent an apartment?
The credit score you need to rent an apartment varies by landlord. Some landlords expect good credit, while others are okay with fair or even poor credit if you have adequate income. Landlords may also be more concerned with evictions, collections, and foreclosures than your credit.
What is considered good credit?
A good credit score is a score of 670 or higher. A score of 740 to 799 is considered very good, and a score of 800 or higher is considered excellent. Credit scores range from 300 to 850. Each credit bureau has its own credit scores, and those may vary. For example, you may have a score of 745 with two bureaus and 735 with another.