Rent reporting to credit bureaus is a valuable service landlords can provide tenants. Reporting rent payments to the three major credit bureaus can help tenants build a healthy credit history. However, landlords who report rent payments to credit bureaus also experience significant benefits. So why should you become a “rent reporter” if you are a successful landlord?
It takes time and consistency when building credit. A healthy credit history requires paying monthly bills on time and never missing a payment. But many tenants don’t consider the benefits of using rental payment history to build credit history. This may be because they pay rent in cash or send a monthly rent check to their landlord.
Many tenants would love the idea of building a healthy credit profile using rent payments. After all, rent money is the largest monthly outgoing payment most renters have. It’s typical for tenants to per 30 or 40 percent of their income on rent payments. So why not use that rent money to affect their credit score?
This article examines compelling reasons landlords report rent payments to credit bureaus. You will find out how rent reporting to the major credit reporting agencies makes the rental experience better for you and your tenants.
How Can a Landlord Report Rent Payments to Credit Bureaus?
Rent reporting to Equifax, TransUnion, and Experian is possible if tenants pay rent money online. Typically, a landlord or rental property manager signs up to report a tenant’s rent using a rent-reporting service. The reported rental payment data would then become part of a tenant’s credit history, impacting their credit score.
Reporting rent payments to the three major credit bureaus is possible using a rent collection platform. The best rent payment apps automatically send payment data. This ensures that credit reports accurately reflect rent payment history. In the end, responsible tenants see their credit scores increase, and landlords have fewer missed payments.
Does Paying Rent Build Credit Score?
Paying rent by cash, check, or electronically doesn’t automatically build credit. Instead, a tenant or landlord must use a third-party reporting service to include rental history in credit. For example, tenants can sign up for an independent service like Rent Reporters. However, the landlord would have to verify on-time rent payments for them to affect credit scores.
Rent Reporting: A Way to Get a Higher Credit Score for Tenants
Paying rent money is the single largest monthly bill tenants have. Using these payments is a fantastic way for tenants to get a higher credit score. How big an impact can reporting rent affect credit history?
A survey by TransUnion found that tenants who use credit bureau services can significantly boost their credit score in a short time. The survey revealed that renters considered unscorable before reporting rent got acceptable credit scores after 12 months of rent reporting. Additionally, renters with poor credit saw their credit score increase by 26 points.
Six Vital Reasons Landlords Should Report Rent Payments to Credit Bureaus
The most common reason landlords report rent payments is to encourage tenants to pay rent on time. However, rent reporting has more benefits for landlords. For example, being a “rent reporter,” a landlord helps attract responsible tenants, fill vacancies faster, and provide a better service for tenants.
Let’s look in more detail at these reasons to use rent payments to build a tenant’s credit.
Rent reporting encourages on-time payments
The best reason landlords report rent is to reduce late payments. Knowing that paying rent late could affect credit ratings is a powerful incentive for tenants to make rent payments on time. Therefore, using a rental payment app for rent reporting results in steady cash flow and stabilizes rental income.
TransUnion reported that rent reporting motivates renters to make on-time rent payments. Their survey found that rent reporting would motivate 73 percent of tenants to avoid missing a monthly payment.
Landlords who report rent payments attract better tenants
Tenants who want to use rent to build credit are typically more responsible. When tenants sign up for a rent-reporting service, they show they are serious about their financial commitment. This is an excellent signal that paying rent on time every month will be a top priority to avoid a dip in credit scores.
Fewer evictions when including rental history in credit reports
Landlords who report rent payments to the major credit reporting agencies also deal with fewer evictions. Because rent payment reporting results in timely payments and makes tenants more responsible, you avoid having to evict tenants.
Therefore, using a rent payment service can save you the time, expense, and stress of starting eviction proceedings against a delinquent tenant.
Fill vacancies faster by reporting rent payments
Savvy landlords who sign up with credit reporting bureaus find it easier to attract new tenants. Studies show that when given a choice between two similar apartments, but one landlord offers to report rent for free, most tenants will choose the one that includes rent payment history in credit.
It’s good to note that only around 20 percent of landlords offer a rent payment reporting service. Therefore, you set yourself apart from the competition in the local rental market. Rent reporting could become your USP to attract more tenants to vacancies.
Better landlord-tenant relationship
Reporting on-time rental payments also galvanizes the landlord-tenant relationship. For example, tenants are happy knowing their on-time monthly rent positively affects their credit score. This makes it easier for them to buy a car, get a new credit card, get accepted for a mortgage, and secure lower interest rates on mortgage payments.
Landlords also experience better relationships with tenants. Fewer late payments mean avoiding having to charge tenants late payment fees. You also save time and resources by avoiding having to chase up payments, fill vacancies, and deal with evictions.
Related reading: How to avoid late payments for good.
Reporting rent payments increases transparency in the rental industry
Landlords who use a credit reporting service also benefit the rental industry. Including rental payment history makes a prospective tenant’s suitability more transparent. For example, future landlords can immediately see on the credit report how responsible the tenant is for paying rent on time.
Does Paying Rent Late Affect Your Credit History?
Making a late rent payment only affects your credit history if you or your landlord reports rent payments. Rental history reports that show missed late payments will severely impact your credit score. For some tenants, this is a reason to avoid rent reporting. However, this can be a red flag to landlords.
Does Breaking a Lease Affect Your Credit Score?
Breaking a lease won’t impact your credit history if you pay all fees and back rent. Additionally, a credit report won’t show penalties for breaking a lease. However, according to Equifax, landlords could turn over rent debt or unpaid penalties to a collection agency. In this case, your debt could be reported to the major credit agencies.
Which Credit Bureau is the Most Important for Rent Reporting?
There is no clear favorite which credit bureau is the best for reporting rent payments. The major credit reporting bureaus have rent reporting options. These are:
- TransUnion — ResidentCredit
- Experian — RentBureau
What should you do if your credit reports show different scores? The two major credit scoring companies—FICO and VantageScore—rate rent payment information differently.
The most commonly used FICO score doesn’t include rental payment information.
However, newer versions of FICO—FICO 9 and FICO 10—include rental payment history in your credit report. VantageScore also includes rent payment information. Therefore, ensuring that your credit history is based on the latest credit scoring models is vital.
How To Report Rent Payments to Credit Bureau for Free
Many online rent payment services offer rent reporting as an add-on feature. Some landlords decided to offer the rent reporting services free to tenants by paying the monthly fee. However, most landlords provide rent payment reporting as a paid-for option for tenants.
It’s generally not always possible to report rental payments to credit bureaus for free. The independent services tenants can sign up for typically include a setup payment and a monthly subscription fee. Some popular third-party reporting platforms include Rent Reports, Rental Kharma, CreditMyRent, LevelCredit, and PaymentReport. Fees to report rent payments are between $7 and $10 per month. Setup fees range from $50 to $100 for a one-time payment.
Rental Payment App to Use Rent to Build Credit History
The easiest way to ensure that paying rent builds credit is to use an online rental payment platform that includes rent reporting. However, although rent reporting is essential for landlords and tenants, not all property management software or rent payment apps have this feature.
Rentdrop is a free rental payment app that will soon feature rent reporting to credit bureaus. Using Rentdrop can help simplify the rental process for you and your tenants. With soon being able to report rent to credit bureaus, you can offer tenants top-notch service.
Rentdrop comes packed with additional features to make rent payments straightforward for tenants and landlords.
Rentdrop for making rent payments
Tenants can pay rent money using a debit card or ACH bank payment for free. For credit card payments, tenants pay an additional processing fee. However, unlike other rent payment services, landlords don’t pay a cent to accept rent payments online.
Other crucial features that simplify the rental process for tenants include the following:
- Rent splitting with roommates
- Easily set up recurring rent payments
- No fees to make direct deposits or debit card rent payments
- Report rent payments to credit bureaus (coming soon)
Rentdrop for rent collection
Landlords find it easy to manage rental properties and rent payments using Rentdrop. The most significant advantage of Rentdrop is that you can accept electronic payments online, avoiding the risk of cash payments or processing rent checks.
Other crucial features that simplify the rental process for landlords include the following:
- No subscription fee to collect rent online
- Accept ACH bank transfers and debit and credit card payments for free
- Block partial payments from delinquent tenants during an eviction process
- Easy access to payment receipts
- Automatically calculate late fees
- High weekly payment limits up to $100k a day
- Several features to encourage tenants to pay rent on time
It’s crucial for landlords to use a credit agency’s services to report rent payments. This has significant benefits for both tenants and landlords. Tenants can use rent payments as part of their credit-building strategy. Landlords and property owners who use rent reporting find it easier to run a successful rental business and keep tenants happy.
Why not sign up for Rentdrop today to see how it can streamline rent payments. There is no signup or subscription fee to pay or collect rent online.