Rent is a common, necessary expense, but how does renting affect your credit score? Paying your landlord on time (or not) every month reflects your general financial habits, which is what your credit score generally reflects–if you honor the payments on your credit cards, your purchases, your loans, your mortgage, etc.
When your rent payment history is reported to the credit bureaus, the timeliness of those payments impacts your credit in either direction. To help you further understand how renting affects your credit score, we’ve compiled a list of answers to related FAQs below.
What score do I need to rent an apartment?
A 2020 analysis of over 5 million renters performed by apartment-info analysis site RENTCafé found that the average credit score of U.S. renters was 638, and has been increasing yearly. Additionally, higher-end buildings attracted (or approved) renters with higher scores, while renters with scores in the 500s tended to live in lower-end buildings. But be warned, there is no universal minimum credit score requirement, and you will likely have to compare different criteria amongst landlords. Also, certain neighborhoods or especially competitive cities like New York might also require higher scores.
Landlords tend to look for scores in the 600s, and many will typically only consider renter applicants with a credit score above 650. If you fall below these marks, don’t despair — there are workarounds to bad credit that you can utilize and still be able to rent an apartment.
Is reporting my rent payments to a credit bureau an effective way to build my credit?
Simply paying your rent will not help you build credit, unless you pay with your credit card. However, by paying your rent with a credit card you might run the risk of high interest rates. However, reporting your consistent and on-time payments can help you build credit.
Having proof that you consistently paid your rent on time for the duration of an entire lease can also help you when you’re applying for your next place. This kind of documentation can persuade potential landlords to accept applications, as property managers prefer tenants who can prove a positive rental payment history.
While there are several different ways to help improve your credit score, reporting rental payments to the credit bureaus may be an option that you’ve never considered! With this information in hand, you can take the necessary steps to see if rent payment reporting is a viable option for you and get the process of increasing your credit score today.
How does paying rent with my credit card impact my credit score?
When it comes to paying your rent with a credit card, your credit score can be affected. That’s because your credit utilization ratio (the total amount of debt that you have vs the amount of available credit you have) will change. That ratio is a key factor in calculating your credit score so don’t be surprised if it goes down. For more information on how to calculate your credit utilization ratio, click here. (And while you’re at it, check your FICO credit score or request a full credit report.)
What are the benefits of paying rent with my credit card?
Paying your rent with a credit card eliminates the need to use paper checks and removes the time you wait for the money to leave your bank account. You also may be able to earn airline miles, bonus points, or cash back depending on the type of rewards credit card you have. I mean, the more you can travel for free, the better!
There are also several very important factors to take into account when exploring the idea of paying rent with a credit card.
Fees & interests to keep in mind:
You might be charged a cash advance, processing fee, or might have a high annual fee. A processing fee can be anywhere from 1.99% or higher.
Keeping up with the credit card payments can be tough, and putting a large amount on the card will bring you closer to your credit limit.
Any credit card purchase can affect your overall credit score, so make sure you understand its impact on your ability to get another credit card, submit a rental application, or take out a mortgage.
Renting, like every other expense, can have a positive or a negative impact on your credit score–especially if you proactively report your rent payments to a credit bureau or your unpaid rent goes to collections. Chances are, you will see a more positive impact if you pay your rent on time, in full every month.
Interested in learning more about building good financial habits? Consider enrolling with Rhino’s security deposit insurance. If your rental offers Rhino, you can pay for a low-cost policy to protect your landlord against any excessive damages or missed rent, instead of handing over a hefty cash deposit.
Enter your desired rental’s address here to see if you can save on your security deposit.
Danae Martin
Danae Martin is a Growth Lead at Rhino. She enjoys soaking up sunshine, exploring new cities, and lifting heavy weights.
As an enthusiast with a deep understanding of personal finance and credit systems, I've spent years delving into the intricacies of credit scores and their various components. My expertise spans from credit card management to mortgage dynamics, and I've closely followed the evolving landscape of how different financial behaviors impact one's creditworthiness.
Now, let's dive into the concepts discussed in the provided article:
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Rent and Credit Scores:
- Rent is a fundamental, recurring expense, and your payment habits can influence your credit score.
- Timely rent payments contribute positively to your credit history, reflecting responsible financial behavior.
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Credit Score Requirements for Renting:
- The average credit score for U.S. renters, as of 2020, was 638, with higher scores associated with higher-end buildings.
- While landlords often seek scores in the 600s, there's no universal minimum requirement, and criteria vary among landlords and locations.
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Effectiveness of Reporting Rent to Credit Bureaus:
- Simply paying rent won't build credit unless paid with a credit card.
- Consistently reporting on-time payments can establish a positive rental payment history, influencing future rental applications.
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Impact of Paying Rent with Credit Cards on Credit Score:
- Using a credit card to pay rent affects the credit utilization ratio, a key factor in calculating credit scores.
- High credit card balances relative to the credit limit can negatively impact the credit score.
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Benefits of Paying Rent with Credit Cards:
- Convenience: Eliminates the need for paper checks and accelerates payment processing.
- Rewards: Some credit cards offer benefits such as airline miles, bonus points, or cash back.
- Caution: Fees, interests, and potential impact on credit score should be considered.
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Fees and Interests Associated with Paying Rent with Credit Cards:
- Fees: Cash advance fees, processing fees, and high annual fees may apply.
- Impact on Credit Score: Credit card usage, including rent payments, affects credit scores and future financial endeavors.
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Overall Impact of Renting on Credit Score:
- Renting can influence credit scores positively or negatively.
- Proactive reporting of rent payments or unpaid rent going to collections affects creditworthiness.
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Rhino's Security Deposit Insurance:
- Suggested alternative: Rhino's security deposit insurance offers a low-cost policy to protect against damages or missed rent, potentially saving on hefty cash deposits.
In conclusion, understanding the nuances of how renting affects credit scores and exploring strategies such as reporting rent payments or paying with a credit card can empower individuals to make informed financial decisions.
