Building Credit as a Renter

Key takeaways

• You can get free copies of your credit reports from all three nationwide credit bureaus through AnnualCreditReport.com, and you can dispute anything that is wrong.
• Paying every bill on time and keeping card balances low compared with your limits are two of the most important habits.
• On-time rent does not automatically appear on your credit reports. Some landlords and services report it.
• In the months before you apply for a mortgage, avoid opening new accounts or taking on new debt.

Your credit history shapes the loan options, interest rates and terms a lender may offer you. The encouraging part is that most of what builds good credit is ordinary and within your control, and you can start while you are still renting.

Credit reports and credit scores are different things

A credit report is a record of your credit accounts: which ones you have, your balances, your payment history, certain public records such as bankruptcies, and a list of who has checked your credit. The three nationwide credit bureaus, Equifax, Experian and TransUnion, each keep their own report on you, and they are not always identical.

A credit score is a number calculated from a report by a scoring model. You do not have just one score. Different models and different bureaus produce different numbers, and mortgage lenders often use specific score versions. That is why a score from a free app may not match what a lender sees. Focus on the habits that improve all of them.

Start by checking your reports

You can get free copies of your reports from each of the three nationwide bureaus through AnnualCreditReport.com, the official site for free reports under federal law. Checking your own report does not hurt your credit.

Read each report slowly and look for:

• Accounts you do not recognize, which can be a sign of identity theft
• Late payments you believe were made on time
• Balances or credit limits that are wrong
• The same debt listed more than once, for example by an original lender and a collector
• Incorrect names, addresses or employers

If you find accounts that are not yours, treat it as possible identity theft and act quickly. The Federal Trade Commission runs IdentityTheft.gov for exactly this situation.

Disputing errors

If something is wrong, dispute it with the bureau that shows it, and consider contacting the company that supplied the information as well. Explain the error clearly and include copies, not originals, of any supporting documents. The bureau generally must investigate, usually within 30 days, and correct or remove information it cannot verify.

Accurate negative information is different. Most of it can stay on your report for up to seven years, and some bankruptcies for up to ten. It does fade in importance over time, especially as you add a steady record of on-time payments.

The habits that matter most

Pay on time, every time

Payment history is one of the most important parts of your credit. Even one payment that is 30 or more days late can hurt. Setting up automatic minimum payments on every card and loan is a simple safety net, and you can still pay more by hand.

Keep balances low compared with your limits

The share of your available revolving credit you are using, often called utilization, matters too. Paying card balances down, and paying before the statement closing date so a lower balance is reported, can help.

Let your accounts age

The length of your credit history counts. Closing an old card you no longer use can shorten your average account age and reduce your total available credit, so it is often better to keep it open with an occasional small purchase you pay off.

Be selective about new credit

Applying for new credit usually triggers a hard inquiry, which can lower some scores slightly for a while. Checking your own credit is a soft inquiry and does not. When you shop for a mortgage, multiple mortgage inquiries within a short period are generally treated as a single inquiry by common scoring models, so comparing lenders within a few weeks is reasonable.

If you are starting with little or no credit

• A secured credit card. You put down a deposit that usually sets your limit. Use it lightly, pay it in full, and confirm it reports to all three bureaus.
• A credit-builder loan. Offered by some credit unions and community banks. Your payments go into a savings account that is released to you once the loan is paid.
• Authorized user status. A trusted family member can add you to a well-managed card. Their habits can affect your report, for better or worse.

Getting credit for paying rent

Rent payments usually do not appear on traditional credit reports unless someone reports them. Some landlords and property managers report on-time payments, and there are third-party rent reporting services, some of which charge a fee. Before you sign up for anything, ask which bureaus it reports to, whether late payments are reported as well as on-time ones, what it costs, and how to cancel.

Not every lender or scoring model uses rent data. Either way, keep your own record of rent payments, such as bank statements or receipts, because lenders may ask about your rental history.

A 12-month credit plan before you buy

1. Now: pull all three reports, dispute any errors, and set up automatic payments.
2. Over the next three to six months: pay down card balances and avoid opening new accounts.
3. In the six months before you apply: keep things steady. Hold off on financing a car or furniture, do not close old accounts, and gather your income and bank documents.

Helpful official resources

Public sources for your own research. MoveToOwn is not affiliated with any of these organizations.

• AnnualCreditReport.comannualcreditreport.com (opens in a new tab)
• Consumer Financial Protection Bureauconsumerfinance.gov (opens in a new tab)
• Federal Trade Commission, Consumer Adviceconsumer.ftc.gov (opens in a new tab)
• IdentityTheft.gov, from the Federal Trade Commissionidentitytheft.gov (opens in a new tab)

This guide is general education, not advice for your situation. Rules, programs and costs vary by state, lender and loan type, so confirm the details with a qualified professional before you make a decision.