The problem with credit scores is that in order to build credit, generally you have to have some sort of debt. Traditionally, this meant taking on a mortgage, car loan, student loan or credit card and paying it back responsibly.
But what if you can't qualify for or don't want this kind of debt? After going through personal bankruptcy or foreclosure, some people have difficulty getting approved for a loan or a credit card. Others have been so burned by debt that they insist on living a cash-only lifestyle. How can you rebuild your credit without taking out a loan or charging up a credit card?
Recently, a few companies have tried to answer this question by providing services that will report your rent payment history to credit reporting agencies - for a fee.
In some ways, rental reporting can be a good deal for consumers. Rent payments have traditionally not been included in credit score calculations, even though more than 100 million Americans rent their living spaces. A steady, timely payment stream can go a long way to improve a damaged credit score.
On the other hand, the costs of these services can sometimes outweigh their benefits. As an example, one service provider charges renters $89.95 in the first year and a $49.95 renewal fee. This is a lot to pay when money is already tight.
Also, rental payment reporting has not gained traction with all the reporting agencies. Only Experian is currently using the data, and its program is still in the pilot phase.
Do Your Homework Before Signing Up
Renters who are considering using one of these services should do their homework first. Fees vary widely and some companies are more reputable than others. Before signing up with a rent reporting service, check with your local Better Business Bureau to see if there have been any major complaints.
It's important to understand that rent reporting isn't the only way to rebuild your credit score, even if you're hesitant to take on credit card debt. Secured credit cards can be a great tool - essentially, you give the bank cash and they give you a credit card with a limit equal to your deposit. Secured credit cards have the advantage of reporting to all three credit reporting agencies.
No matter what method you choose, know that an improved credit score won't happen overnight. But, with each on-time payment you will get a little closer to being where you want to be. Just make sure you're doing it in a way that makes sense for you.
