What is a Renter’s Credit Score?
If you’re planning to rent an apartment, one thing you need to prepare yourself for is a credit check. Your would-be landlord or the property management company will want to a peek at your credit to make sure you’re financially responsible.
While some landlords may check your FICO score or VantageScore, others may prefer to use a renter’s credit score instead. Before you fill out a lease application, here’s everything you need to know about rent reporting and credit scores.
Renter’s Credit Score Basics
First things first, let’s look at what a credit score is in general. Credit scores are a measure of your creditworthiness. In other words, they tell lenders--or in this case, landlords--how good you are at paying your bills on time.
So why does that matter? There are a few different reasons, starting with your ability to qualify for a lease. If your credit score is low because of an unpaid collection account or past due credit card bills, a prospective landlord could decide you’re too much of a risk to rent to.
If they choose to take a gamble on you, despite a lower credit score, they may ask for a larger security deposit. The same goes if you’re trying to get utility services in your name at your new apartment. That can make renting more expensive, at least in the short-term.
Your renter’s credit score can help to offset past mistakes you may have made credit-wise. For example, let’s say you left an old medical bill unpaid because you didn’t have the cash to cover it. The account was sent to collections and it’s been sitting on your credit report ever since.
If you have a positive history of paying your rent on time, that could take some of the sting out the black mark caused by the collection account. Your lender may look more favorably at your application if you’ve shown that you’re able to keep up with your rent.
A renter’s credit score could also help with establishing your credit history if you don’t have any loans or lines of credit in your name. If you’re fresh out of college, for example, and you’re hoping to become a homeowner one day, having a positive renter’s score could make it easier to qualify for a mortgage down the line.
Where Do Renter’s Credit Scores Come From?
Renter’s credit scores focus more heavily on your rental history versus things like your debt or credit card payments.These scores are calculated based on what’s in your rental history report and there are several companies that offer rent reporting and renter’s credit scores. Here’s a rundown on how they compare.
1. Experian RentBureau
Experian RentBureau works by incorporating your rent payment data into your Experian credit report. According to Experian, this data can then be used to calculate certain credit scores, helping you to build your credit profile.
Up to 25 months of rent payment history can be added to your Experian report. Your lease will show up as a tradeline on your report and only positive history reported to RentBureau is included. That means a late payment won’t count against you.
Your landlord or property management company has report your payments to RentBureau through a rental payment service. Bear in mind that your rental data would only show up on your Experian credit report.
2. TransUnion SmartMove
TransUnion SmartMove is a tenant screening service that offers background checks, including a credit check, to landlords. Potential tenants are assigned a ResidentScore, which is based on their credit history. This score is based on what’s in your TransUnion credit report.
To use SmartMove, your landlord has to email you a screening request. You then authorize the screening by providing your personal information online through a secure login. TransUnion uses your information to generate a ResidentScore, ranging from 350 to 850.
Just like traditional credit scoring models, which we’ll explain in a little more detail later on, a higher score is what you want to aim for. According to TransUnion, qualifying for a lease is most likely when your score is 560 or higher.
RentTrack is an independent rent reporting service that reports your rental history to all three major credit bureaus: Equifax, Experian and TransUnion. You and your landlord have to join RentTrack to report your rent payments.
Up to 24 months of rent payments can be reported. Rent payments can be used for calculating certain credit scores, such as your VantageScore. You can pay your rent online through your account but there’s a fee for this service. If your landlord opts to cover the fee, you can report your rental history for free.
4. Rental Kharma
Rental Kharma is similar to RentTrack. It takes about three minutes to set up an account and start reporting rental history to TransUnion. Up to 24 months of positive rent payments can be reported.
Your landlord has to agree to report your rent payments but if you’re paying on time, that could be a help to your score. You’ll have to verify your account once you sign up, which involves paying a $40 fee up front. After that, the monthly fee is $9.95 but you can cancel at any time.
RentReporters is another rental reporting service that works with TransUnion. You can opt to have up to two years of prior rent history reported or start reporting on a monthly basis. The fees vary based on which option you choose.
The RentReporters website heavily touts the advantages of reporting rent in terms of how it can help your credit score. They offer a satisfaction guarantee, in case you’re not 100% happy with the changes to your score that come from reporting your rent.
Renter’s Credit Scores vs. Traditional Credit Scores
“Credit score” is a general term but there are several different types of credit scores, apart from your renter’s credit score. Your FICO score, for example, is the score that 90% of major U.S. lenders rely on for credit decisions. If you’re applying for a car loan, a mortgage or a credit card, chances are good that the lender’s looking at your FICO score.
These scores are based on a formula that incorporates five distinct factors. FICO doesn’t disclose the exact formula but we know what the factors are:
FICO Credit Score Factors and Their Percentages
|FICO credit score factors||Percentage weight on credit score:||What it means:|
|Payment history||35%||Your track record when it comes to making (at least) the minimum payment by the due date.|
|Amounts owed||30%||How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits.|
|Length of credit history||15%||The average age of your active credit lines. Longer histories tend to show responsibility with credit.|
|Credit mix||10%||The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.)|
|New credit||10%||The new lines of credit that you've requested. New credit applications tend to hurt you score temporarily.|
As you can see, your payment history and your credit utilization have a major impact on your FICO score. Paying late or maxing out your credit lines can be the biggest killers to your score. On the flip side, keeping balances low, paying on time, and limiting how often you apply for new credit can add up to a higher score.
FICO scores range from 300 to 850 and in terms of what constitutes a good credit score, here’s how they break down:
Credit Score Ranges and Quality
|Credit Score Ranges||Credit Quality||Effect on Ability to Obtain Loans|
|300-559||Very Bad||Extremely difficult to obtain traditional loans and line of credit. Advised to use secured credit cards and loans to help rebuild credit.|
|560-649||Bad||May be able to qualify for some loans and lines of credit, but the interest rates are likely to be high.|
|650-699||Average/Fair||Eligible for many traditional loans, but the interest rates and terms may not be the best.|
|700-749||Good||Valuable benefits come in the form of loans and lines of credit with comprehensive perks and low interest rates.|
|750-850||Excellent||Qualify easily for most loans and lines of credit with low interest rates and favorable terms.|
As you can see, there’s a fine line between bad credit and fair credit, or good credit and excellent credit. Here’s an example of how a higher credit score could pay off in the long run.
Let’s say you’re angling to go from being a renter to a homeowner. You have a 685 credit score, which qualifies you for a $200,000 mortgage with an interest rate of 4.75%. Your monthly payments would come to $1,043 and over 30 years, you’d pay nearly $176,000 in interest.
Now, let’s assume you get the same loan but you have a 750 credit score, which qualifies you for a 3.75% interest rate. That knocks your payments down to $926 and cuts the total interest down to just over $133,000. That’s $43,000 in savings just for having a higher score.
The takeaway? Keeping your FICO score--or your renter’s score--in good shape should be a top priority.
Maintaining a Good Renter’s Credit Score
The easiest way to keep your renter’s credit score on solid ground is to always pay your rent on time. The more positive rental payment history you have, the more weight that may carry where your score is concerned.
If you’re renting with a spouse or you have multiple roommates, encouraging them to pay their share on time is also a smart move. If you’re using one of the rent reporting services mentioned earlier, be sure that your landlord specifies who’s making the payment so you get the proper credit.
Signing a longer lease could also work in your favor. If you’ve been renting at the same place for five years, that’s likely to look better on your credit report than hopping from place to place every six months.
The Bottom Line
Having a good renter’s credit score can come in handy if you’re trying to get a new lease or just improve your overall credit picture. A better credit score can mean easier approval for new loans or lines of credit and better interest rates when you borrow. Just remember to research any rent reporting company before you sign up so you know what you’re getting for your money.