Savvy consumers know paying their monthly bills on time is one of the best ways to boost their credit score.
But often, there’s one glaring exception: rent.
In most cases, paying rent for an apartment or house doesn’t affect your credit score.
That’s because most apartment owners, landlords, and management companies don’t report rent payments to the three major U.S. credit bureaus, which track consumers’ credit habits and collect the data that’s used to generate credit scores. The three bureaus are TransUnion, Experian, and Equifax.
Some property management companies and rent payment processing services do report on-time rent payments, but they’re not the majority and they may not report to all three bureaus.
It’s a common misconception paying rent, and cell phone, or utility bills on time helps your credit score. In fact, these payments often aren’t reported to the bureaus, and if they’re not reported, they can’t help your credit score.
That doesn’t mean you can pay those bills late with impunity. Rather, it’s important to pay on time because landlords, cell phone companies, and utility companies typically send unpaid accounts to collections. Late payments reported by collection agencies can affect your score.
Other misconceptions involve employment, income, pay raises, paying off debt, reviewing your own credit report, and trends or changes in your personal finances. None of those directly affect your credit report or score.
So what does affect credit scores?
The answer is payments that are reported to the credit bureaus. Examples include mortgage payments, auto loan payments, credit-card payments, and charge card (e.g., department store, gas station) payments.
Paying those bills on time can help your credit score. Paying them late can hurt your score as can bankruptcy, foreclosure, repossession, and other derogatory events.
Here are some other facts about credit:
• Reviewing your own credit report creates what’s known as a “soft” inquiry that shouldn’t affect your score. Applying for credit triggers a “hard” inquiry by a lender, which can lower your score, but only slightly.
• Closing old or inactive credit accounts won’t improve your score. On the contrary, closing old accounts can actually lower your score by shortening your credit history or increasing your credit utilization ratio.
• Paying off debts doesn’t directly boost your score. In fact, collections and late payments can stick on your report as long as seven years even if the account has been closed. That doesn’t mean you shouldn’t pay off debt, only that it won’t directly affect your score.
• Other items that are not included in credit scores include your age, gender, race, religion, national origin, marital status, salary, or occupation.
If you pay rent on time every month, ask your landlord or management company to report your good behavior to the credit bureaus to help keep your score healthy.