Good news is on the horizon for people with credit score issues. A new Credit Scoring Law that finally went into full effect called Credit Score Competition Act allows credit bureaus to accept on-time payments of rent, utilities, and cell phone payments to build credit histories for people without credit, slow credit, or even bad credit.
Imagine establishing a pretty good credit score if you just pay your rent on time and pay other miscellaneous bills as well.
For decades, the credit scoring system in America has mostly deprived consumers of the chance to build a decent credit history. According to government data, over ten million people, including people of color or those who qualify as low-income haven’t been too successful at buying homes or getting loans and other types of credit due to a lack of credit history.
Now there is an active law passed by Congress in 2017 called the Credit Score Competition Act which fixes the gap between having no chance to build credit through alternative ways. For example, Congress lawmakers approved two credit score models; one called the VantageScore 4.0 and the FICO 10T that can be used for consumer loans and mortgages underwritten by Fannie Mae and Freddie Mac. Both entities guaranteed most mortgages in the United States. What is so special and beneficial about VantageScore 4.0 and FICO 10T is that these scoring models include timely rent payments, utility payments as well as cell phone payments.
“The software is already in place to have utility bills, cell phone bills, any of your subscriptions that you’re paying a monthly obligation, are going to automatically be included in that VantageScore model,” said Paul Oster, founder of a credit repair firm Better Qualified.
South Carolina Republican U.S. Senator Tim Scott introduced the Credit Score Competition Act Bill on August 1, 2017.
“I applaud the Financial Service Committee and the whole House for putting people ahead of politics by passing this key piece of legislation. In particular, the Credit Access and Inclusion Act will increase access to credit for nearly 29 million Americans who are credit-worthy but credit invisible. It’s almost possible to climb the economic ladder without a credit history and this bill will eliminate that barrier for people who work hard and do the right thing,” Scott told members of Congress.
The Way Lenders Operate
A credit score is a mathematical possibility of repaying debt. Credit bureaus compile data on how a person handled debt in the past, which is reported by credit card companies and other lenders. Most lenders use the FICO credit scores to determine loans. From a broad perspective, when people apply for a loan the lender checks their credit score to determine if they qualify for a mortgage.
If a person qualifies, next the credit score is calculated to determine interest rates based on an individual’s credit history; whether they made timely payments on loans and credit cards. The typical FICO scoring model gives a person a number between 300 and 850. A score under 600 is considered poor; a score above 740 is good. Anywhere between 700 and 735 is more in the average range. A score of 800 or 850 is excellent
Yet millions of Americans lack a credible credit score because credit scoring data and the points calculated do not exist which severely limits their ability to get a loan or buy a home or vehicle. In some instances, nonpayment of utilities has prevented people from having lights turned on in their residences.
“Many families rely on cash and don’t understand how to use credit in the wealth-building process,” Eric Goodie told Fox 26 TV News in Houston. “They don’t have established accounts. They don’t understand income ratios and how to best manage that.” Eric Goodie is the Vice President of the Houston Area Urban League
It is well documented in the credit industry that rent and utility payments aren’t reported to credit bureaus which means a person may not be getting credit for bills they regularly pay.
“How could you not give credit to someone who’s been paying the rent on time for years? I know it’s not a mortgage, but it’s a monthly payment that they’re paying,” credit repair expert Paul Oster said.
So as it stands today rent payments paid on time can help build credit and subsequently raise a consumer’s credit score. Of course, it doesn’t happen overnight. But it can happen if you stick to the plan. Paying timely rent payments isn’t the only option for beginners to build a credit history. Several other factors are included.
For those who don’t know where to start, first, try Experian Boost. Experian Boost is a free service to help consumers improve their FICO Scores by including on-time payments of rent, utilities, and subscription services listed on Experian Credit Reports. If a consumer chooses to use a rent-reporting service they need to know which credit bureaus will report their payments to – and which credit scores accept rent payments and give a fair score.
While there are a few free services to deal with, there are services that charge a fee to report rent payments to credit bureaus. Credit Rent Boost, a division of 950 Credit Inc, works directly with tenants and landlords in the Houston, Texas, area to record monthly rent payments to TransUnion and Equifax to improve credit scores. Credit Boost website further said their company can build credit for rental payments over the previous two years and report the last 24 months.
How and Where to Report Rent Payments to Credit Bureaus, according to nerdwallet.com:
Do rent payments affect credit?
All three major credit bureaus – Equifax, Experian, and TransUnion – will include rent payment information in credit reports if they receive it.
Credit reports, in turn, provide the data that goes into your credit scores. The two major credit scoring companies, FICO and VantageScore, vary in how they handle rent payment information:
Some commonly used versions of the FICO score don’t use rental payment information in calculating scores.
Newer versions of FICO, such as the FICO 9 and FICO 10, do consider rental information if it is in your credit report.
VantageScore also considers rent payment information. (NerdWallet offers a free VantageScore 3.0 from TransUnion.)
Which services will report your rent payments?
There are several ways to get records of your rent payments in front of lenders.
Positive Rent Payment pilot program
Fannie Mae launched a pilot program in September 2022 intending to help renters build their credit history and grow their credit scores. The Positive Rent Payment program links Fannie Mae-financed owners of multifamily properties with three vendors – Esusu, Jetty, and Rent Dynamics – to allow landlords to report tenants’ on-time rent payments to credit bureaus for one year. Fannie Mae will reimburse the vendors, and no costs will be passed along to renters.
Fannie Mae says it hopes that rent reporting will motivate more on-time payments, help renters find housing in a wider range of neighborhoods, and possibly reduce the amount they’ll have to put down as a security deposit on future rentals.
The focus of this program is on Black and Latino communities, which are disproportionately represented among those with little or no credit profile.
Piñata: The service is free to renters, no matter their landlord. It reports to TransUnion. If your landlord signs up for a specific partnership with Piñata, your rent payments can be reported to all three bureaus.
Services that charge renters
Your landlord may need to verify your rent payments; some services may not be able to report your payments if your landlord won’t verify.
Rent Reporters: There is a one-time enrollment fee of $94.95, which includes up to two years of reported rental payments. From there, you can enroll in a monthly plan ($9.95 per month) or an annual plan ($7.95 per month). Rent Reporters report to TransUnion and Equifax.
Rental Kharma: Initial setup is $50, and the service is $8.95 per month. Reports include all history at your current address. You can include your roommate or spouse for a $25 one-time fee and an extra $5 per month. Rental Kharma reports to TransUnion and Equifax.
LevelCredit: Previously known as RentTrack, LevelCredit charges a $6.95 monthly fee to have your rent, cell phone, and utility payments reported to the credit bureaus. Rent is reported to all three bureaus, while utility payments are reported to TransUnion only. A look-back of up to 24 months is available on your current lease for a one-time fee of $49.95.
Rock the Score: There is an enrollment fee of $48, and ongoing service costs $6.95 per month. There is a $65 fee for reporting up to two years of rental history. Rock the Score reports to TransUnion and Equifax.
CreditMyRent: This service charges a monthly fee of $14.95, with no setup fee. There are additional charges if you want past rent reported. CreditMyRent reports to TransUnion and Equifax.
PaymentReport: A $49 setup fee gets you two years of rental history reported to Equifax and TransUnion. Ongoing reporting is free for the flat-rate plan, and you can add a roommate or spouse for free. Ongoing reporting for monthly plans costs $2.95 a month, but there is no setup fee. (PaymentReport also has a version offered through landlords that requires electronic rent payments.)
Services paid for by landlords
While the services listed above can be initiated by renters regardless of where they live, the following rent reporting services are available only if landlords or property managers opt into the services. Sometimes, renters are even automatically enrolled when they sign their lease, and these services are typically free to renters.
ClearNow: This service debits your rent from your checking or savings account. There’s no cost to you as a tenant, but your landlord must be signed up. If you opt-in, payments are reported to Experian.
PayYourRent: Fees are typically paid by management. PayYourRent reports to all three credit bureaus. Residents can opt in or out at any time.
Esusu: This service reports your rental payments to all three major credit bureaus. It’s free to you as a renter if your landlord has a service agreement and if you’re not part of the Positive Rent Payment program. Esusu sends an enrollment email to renters to initiate the set-up.
Jetty Credit: Also part of Fannie Mae’s pilot program, Jetty is free to renters who live at participating properties. Jetty reports rental payments to all three credit bureaus, and tenants are automatically enrolled.
Bilt Rewards: This program lets renters at participating Bilt Alliance properties earn rewards by reporting their rent through the app for free. This service is optional, and renters should receive an invitation when they move in. Renters who do not live in one of these properties can still earn by using the Bilt Mastercard. Renters can earn points to go toward future rent payments or can transfer points to airlines and hotels. Benefits accrue based on tier status, ranging from blue to platinum. The service reports rent to the three major bureaus.
Rent Dynamics: A service aimed at multifamily landlords and property owners that is part of the Positive Rent Payment pilot program. It reports on-time paid utility bills to all three credit bureaus and can retrieve up to 24 months of payment history. Renters should contact their landlords for enrollment information.
How to choose a rent-reporting service
First, check to see if your property manager already works with a service. If not, here are questions you should ask rent-reporting service providers before choosing one:
- What would my total costs be for a year of service, including any setup fees or fees for reporting rental history? (Some services can go back as far as 24 months.)
- How do you protect my personal data?
- Which of the major credit bureaus do you report to? (All three are ideal.)
- Do you provide free access to credit scores, and if so, which score(s)?
- How soon should I expect the information to appear on my credit report?
- How can I cancel the service?
What happens if I have a dispute with my landlord or break my lease?
In some states, renters have a right to withhold payment if the landlord fails to keep the unit repaired and habitable. Find out whether rent withheld during a dispute is reported as nonpayment or a negative mark.
Rental payments and utility payments submitted to credit bureaus to help consumers build credit is a new way for the inclusion of all citizens to get a crack at climbing the economic ladder and enjoy having a taste of credit to help them with finances in the long run.
The new credit scoring law could be great news for people without credit cards.
NewsBlaze Senior Business Reporter Clarence Walker can be reached at [email protected]