Does Paying Rent Late Affect Your Credit? Here's What You Need to Know

Why late rent matters for your credit

Rent is one of the largest recurring expenses for Americans who don’t own their own home. Paying rent late is more common than you might think, especially during tough economic times. Do late rent payments affect your credit? This article will answer that question and show you how to prevent late rent payments. Key takeaways include:

• Late rent payments don't always impact your credit score, but they may if your landlord reports to a credit bureau or the debt is sent to collections.
• Most landlords don't report rent payments directly. However, property management companies or those using rent-reporting services might, especially after 30 days of delinquency.
• Your payment history is the most important part of your credit score, so consistently paying rent late, if reported, can significantly hurt your score.
• You can build your credit by reporting on-time rent payments through services like Experian Boost, RentTrack, or Rental Kharma.
• Unpaid rent sent to collections will almost certainly harm your credit, even if your landlord didn't report the late payment initially.
• Good financial habits, like budgeting, negotiating due dates, or setting up autopay, can help you avoid late payments and protect your credit.

What impacts your credit score?

When we talk about “affecting your credit,’ we’re referring to the impact an action has on your credit score. Paying rent late may or may not be one of those actions. We’ll get into that in more detail below. First, let’s review the specific ways a credit score is calculated. FICO scores are the most common model used. Their scoring model has five variables:

• Payment history (35%): This is the largest factor because it tracks on-time payments to credit accounts. That includes reported rent payments, late credit card payments, mortgages, personal loans, and auto loans. This category makes up 35% of your credit score.
• Credit utilization (30%): Your credit utilization is the percentage of available credit you’re using. For instance, spending $1,000 with a credit card that has a $10,000 limit would put your utilization at 10%. Credit bureaus like to see low numbers here.
• Length of credit history (15%): Never close out your oldest credit card account because it sets the timeline for this category. More established credit users tend to have higher credit scores and approval ratings with lenders.
• New credit inquiries (10%): Every credit application you submit could trigger a credit inquiry. Too many inquiries could lower your credit score.
• Credit mix (10%): The variety of credit accounts you have is a sign of financial maturity. Examples of this are personal loans, credit cards, mortgages, and car loans.

While rent payments aren't traditionally included in payment history, they can be if reported. That means that late payments could bring your score down.

Does paying rent late affect your credit?

The answer to this question depends on who you send your rent checks to. An individual renting an apartment in his three-family house is unlikely to do credit bureau reporting to Experian, TransUnion, or Equifax. Property management companies are more likely to report late payments, but they usually notify you of that intent before you sign your lease.

This differs from mortgage payments, which are almost always reported to credit bureaus. Mortgages are long-term installment loans. Apartment rentals or property leases are usually short-term agreements that come up for renewal on an annual basis. For your rent payment history to affect your credit score, one of the following must happen:

1. Your landlord or property manager must use a rent-reporting service.
2. You must opt in to a third-party rent reporting service yourself.
3. Your debt must be sold to a collection agency.

None of this applies if you send your rent check a day or two late. Credit bureaus typically don’t report a delinquency until you’re thirty days behind. That’s your grace period for credit reporting, but your landlord might still charge a late fee. Some landlords use rent reporting services to keep track of how often that happens.

How late rent can indirectly hurt your credit?

Late rent payments will not directly affect your credit score if they’re not reported, but they can indirectly hurt you if the landlord sends the debt to a collection agency. That action is reported, and it stays on your credit report for up to seven years. That could significantly impact your ability to get approved for a loan, mortgage, or car loan in the future.

Collection actions and low credit scores also impact your ability to obtain favorable interest rates on credit cards, pass employment background checks, or rent another apartment. Many landlords check both credit and rental payment history before approving new tenants, so it’s best to avoid late payments whenever possible. We’ll explain how later in this article.

Can renting help build your credit score?

Let’s look at the other side of this equation. Paying your rent on time can positively impact your credit score if it’s reported. Landlords won’t typically take the time to report on-time payments, but renters can do it voluntarily using the following services:

• Experian Boost: Experian Boost scans your bank records to add rent and utility payments to your Experian credit report.
• Rental Kharma and RentTrack: Both of these rental reporting agencies can report your payments to TransUnion and Equifax for a small monthly fee.
• PayYourRent: This service is typically used by property managers to report payments.

People with thin credit files can benefit from self-reporting because it helps build credit history or rebuild damaged credit after financial difficulties. Some landlords offer voluntary reporting to attract more responsible tenants. Individuals who agree to that are more committed to paying on time, whereas prospective tenants with affordability fears might not be.

How to prevent late rent from hurting your credit

Preventing late rent payments is usually a financial management issue, though there are exceptions when faced with an economic hardship. Aside from that, here are some practical steps to ensure rent payments don’t damage your credit:

• Budget proactively: Make a list of your monthly income and expenses. Include non-essential expenses like take-out and expensive cable packages. Those can be removed if you’re falling short on rent payments. Proactive budgeting is about putting needs before wants. Do that and your finances will be more manageable.
• Set up calendar reminders: Set up an alert on your phone to remind you to make a deposit or send a rent check. The calendar app is a good place to do this because it will send a text and/or email alert if you set it up that way.
• Communicate with your landlord: Do you know if your rent payments are on your credit report? Contact your landlord to ask about that. Start a dialogue so you can more easily make that phone call when you think you may be late on the rent.
• Build an emergency fund: This is a preventative measure to get you through a financial crisis. Set aside a small amount from each paycheck and put it into a savings account. Don’t touch it unless you need it.

If you fall behind, address the situation immediately. Work out a payment plan with your landlord before they send your account to collections. You’ll also want to avoid an eviction proceeding that shows up on a background check, but that’s a topic for another day.

Conclusion

Paying rent late doesn’t always hurt your credit, but the consequences can be long-lasting when it does. Late payments can lower your credit score, and collections stay on your credit report for up to seven years. You can avoid both by carefully budgeting your money and communicating with your landlord when you fall behind. Be proactive, and you can avoid late rent payments.