Rent Reporting Gains Traction as Credit-Boosting Tool, But Experts Urge Caution
More consumers are turning to rent payment reporting services to build or improve their credit scores. Though, financial experts caution that thes services aren’t one-size-fits-all and require careful consideration before enrollment.
The appeal lies in leveraging consistent rent payments – often a meaningful monthly expense – to establish or strengthen credit history, particularly for those with limited or no credit files. According to experts, even a small amount of positive rent history “can have a really significant impact” for individuals in this situation, says Jeff Schulz. But for those with established credit,the benefit might potentially be minimal.
Before signing up, Chi Chi Wu, a senior attorney at the National Consumer Law Centre, advises considering potential downsides. “Before you enroll in a rent reporting service, consider the negative consequences or the worst-case scenario, like a job loss,” she saeid. Schulz agrees, noting, “If you are concerned about your job, such as, and unsure if you’re going to be able to make your rent payments six months from now, maybe it’s not the best time for you to sign up.”
Here are five questions to ask before enrolling in a rent reporting service:
1. Do you truly need it?
If you already have a solid credit history and a good score, adding rent payment data may not considerably alter your credit profile. Wu suggests checking your credit score first to assess if rent reporting will make a difference.
2. What is the cost?
Rent reporting services vary in price. Some are free, while others charge monthly fees ranging from $6.95 to $9.95, according to Apartment List. Enrollment or setup fees can also apply, costing between $25 and $95. It’s vital to determine if you’ll bear the full cost or if your landlord contributes.
3. Does the service report to the three credit bureaus?
Ensure the service reports to all three major credit bureaus - Experian, Equifax, and transunion. Some services only share data with one or two bureaus, which can limit the impact on your credit score when applying for loans or credit cards. Schulz explains that data not reported to the bureau a lender uses ”is largely irrelevant because it won’t be seen.”
4.What data does the service report?
Services differ in what they report. Some only share on-time, in-full payments, while others may also report late payments, potentially negatively affecting your score. Even reporting only positive history carries a risk, Wu warns.A sudden stop in data reporting could lead landlords to make negative assumptions.
5. What is the cancellation policy?
Cancellation policies are not standardized across providers. Wu emphasizes the importance of understanding how to cancel the service and any potential implications, particularly concerning your credit. Schulz adds,”Before you sign up,find out how you can cancel the service and understand what the implications are,especially when you’re talking about something related to your credit.”
