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Build Your Credit: Pay Rent

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For the first time, paying your rent on time may help you build better credit. Experian, one of the big three national credit unions, recently announced that it will include rent payments in credit reports.

“Rent is the single largest monthly expenditure for approximately one-third of the U.S. population,” Experian says in a press release, “and until now, it has been missing from credit bureau files.”

Renters have long been at a disadvantage to homeowners, whose monthly mortgage payments helped improve their credit. For years, advocates have tried to change that. Michael Nathans was so incensed that traditional credit unions didn’t include rent in credit reports that he created his own credit bureau called Pay Rent, Build Credit to do exactly that.

The fact that many low- and moderate-income people rent instead of own their own homes makes it difficult for them to prove their creditworthiness.

“They were being treated as though they had bad credit, when in fact they had no credit,” Nathans told me.

[Related article: The Crusade to Prove Creditworthiness]

Experian’s announcement could be a big step toward changing that. Cost appears likely to remain an issue, however. Nathans found that it costs about $65 to verify that someone is actually paying rent. Few lenders were willing to pay that amount, especially since it meant the borrower likely would qualify for lower interest rates and loan fees.

Experian calls its enhanced credit reports with rental information “enhanced,” which means lenders have to pay extra for them, too.

On the other hand, the company says, adding rental information to credit reports could be a boon for businesses, too.

“Inclusion of positive rental history in credit files will enable you to target an expanded set of underserved consumers who were previously unscoreable,” according to the Experian’s press release.

[Consumer guide: Specialty Consumer Reporting Agencies: Tenant History Reports]

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  • Anie

    So, how do we, as consumers, demand or get this information to a lender when applying for a loan? My husband and I have paid rent, never late, for over 3 years. We don’t have a bad credit report or tons of debt but we do have a lot of medical bills (PAID) that are holding us back from getting a decent rate from a lender. Rental information could put us right where we need to be. Do tell more….

  • Christopher Maag

    Hi Anie,

    Thanks for your note. Unfortunately at this time it’s up to the lender to decide whether to pay for this extra service. But there is a way you and your husband can use your regular rent payments to build your credit. I did a story about Michael Nathan, who is creating a credit card designed to help people use their regular rent and utility payments to improve their credit. Going through his system, you can get your rent independently verified, and then attach proof of regular payment to your loan application.

    Here’s the last part of my story on this: http://blog.credit.com/2010/12/the-crusade-for-proving-creditworthiness/4/

    And here’s a link to Nathan’s company: http://www.trycera.com/index.html

    I hope this helps!

    -Chris

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