Regardless of the credit scoring model, your ability to make payments on time has the largest impact on your credit score. That said, it can be frustrating to learn that rent and utility payments – bills you likely pay regularly – are not considered.
Rent and utility payments are generally not included in your credit report because they don’t involve paying down a debt or line of credit. Unlike mortgage payments, rent payments (or the lack thereof) are generally only included in your credit in the event of nonpayment that a landlord might report. In other words, rent and utility payments made directly from your bank account generally do not impact your credit score – until now. This is where rent reporting can help you to build and improve your credit by reporting bills you already pay.
Here’s a breakdown of how it works.
What is rent reporting?
Rent reporting enables you to report bills paid through your checking or savings account, helping to improve your score over time. It works one of two ways:
- Using a third-party company, like Rocket Money’s partner, Level Credit, you can pay a small fee to have monthly bills like your rent, cell phone, water, etc. reported to the three major credit agencies through a linked bank account. This allows you to report payments even if they’re made via check, debit account, an online payment portal, or even an online payment service like Venmo or PayPal.
- If your landlord participates in a rent reporting service or rent collection service that also reports rent payments to one or more of the major credit bureaus. Some credit bureaus offer a rent reporting service directly, such as TransUnion’s Resident Credit program or Experian’s Rentbureau.
A major benefit of rent reporting to you – the renter – is that it accounts for bills you’re already paying without requiring you to take on more debt, which can be risky if you’ve had trouble making on-time payments in the past. Further, it can be difficult to open a new line of credit when you’re already working to improve your score. Rent reporting can also help you build credit if you’ve yet to establish a credit history.
There is also a benefit to the landlord or property management company in that rent reporting encourages renters to make on-time payments and eliminate the need for checks. If they are not yet using such a service, it may be worth suggesting as a win-win for the both of you.
How does rent reporting improve my credit score?
Your credit score comprised of several factors including:
- Payment history (40%): do you have a history of making payments on time?
- Age and type of credit (21%): how far does your credit history go back (the longer the positive history, the better) and what types of credit do you have? Lenders generally like to see that you are responsible with a variety of credit types.
- Credit utilization (20%): of your total available credit limit, how much of it are you currently using? Ideally, you want to keep this number low. Making more frequent payments throughout the month can help.
- Total balances (11%): how much do you currently owe across all your debts?
- Recent behavior (5%): this considers hard inquiries and recent applications for credit. Ideally you want these spread out over long period of time. Several hard inquiries in a short period can negatively impact your score.
- Available credit (3%): Are you taking on an excessive amount of credit or only what you need
Depending on the credit score model (Rocket Money uses the Vantage 3.0 model) these above factors and weightings might differ, though payment history is always the most important factor. This means the more bills you can account for and pay on time, the more impact you can have on your credit score. By adding your rent and utility bills to that mix, you’re able to have a larger impact with bills you already pay on time.
Rocket Money’s partner, Level Credit
Rocket Money’s partner, Level Credit, allows you to pay rent directly and securely through your bank account for things you already pay for, like electric and gas bills. For an additional fee, you can even include payments made in the past 24 months which can give a big boost to some people who may lack other sources of credit.
What about services I pay on a credit card?
Anything you pay on a credit card is already included in your credit report, though it’s common for service providers to charge a 2.9% processing fee for any payments linked to a credit card. To avoid this fee, most people link a checking account to pay via ACH transfer, which would not be reported. This makes rent reporting a great option to include those payments made directly from your bank account via check or transfer.
What else can I do to improve my credit?
If you haven’t already, you might try a secured card, which is similar to a credit card except it requires that you pay a deposit to open the account. This fee acts as a security deposit to protect the lender in case a borrower defaults, which acts in your favor in that they are more likely to provide you with a card even if you don’t have less-than-great creditor lack a credit history. You can explore other options to improve your credit here.
Is my mortgage included in my credit report?
Yes, because your mortgage is considered a debt, mortgage payments are already factored into your credit report.
We hope this article is helpful in improving your credit score using bills you already pay. Not sure what your credit score is? You can easily check and monitor your credit score using the credit score feature in Rocket Money.