You may pay your rent on time every single month, but this good behavior won’t help your credit score – until now.
We were excited to learn about a new product called Rental Kharma that promises to help renters build credit by self-reporting rent to your FICO Expansion Score.
Bill Butler, co-founder and director of business development, kindly took the time to answer the following questions for us about how this works.
What is Rental Kharma, and how long has it been around?
Rental Kharma is a service that helps renters and apartment companies submit rent payments to credit reports and credit scores. We give renters the ability to build their credit history by reporting their past rental payments to their credit.
We started the company in May 2012 and thousands of renters have used our service.
Why are rent payments not part of a consumer’s credit report?
The rental market is very fragmented. There are something like 40 million apartment units in this country, and many of those units are owned by individual landlords who may own only a few units. Because of this, there is no centralized source that collects all rental payments.
Most landlords don’t have the time or inclination to set up a very complicated process to submit rent payment information. The only exception to this is when a renter is very late with rent and evicted.
In these cases, a collection company is usually employed and negative payment information can be submitted. This creates a situation where renters can only be penalized for being late but not rewarded for being on time.
This is inherently unfair and a major reason why we started Rental Kharma.
How does Rental Kharma work?
Rental Kharma has two models. One is we work directly with landlords/property managers. However, we can only work with larger properties of 100+ units.
The other model is where the renter comes directly to our site and self-reports their rental payments for the past two years.
The renter completes an online registration and then has to do a rental verification. The rental verification process involves printing out documents and choosing one of three verification methods. A renter can involve the landlord and have the landlord sign the documents.
Additionally, the renter can self-report his/her payments by providing us with check images/bank statements for every month of rent.
Finally, a renter can have their bank sign off that all these payments were made through their account.
Rent payments are only considered late in the credit world if they were more than 30 days late, so there’s no danger to your credit if you have been a few days late from time to time.
“We give renters the ability to
report their rent payments.”
What is the FICO Expansion Score. How is it different?
Fifty million Americans don’t have enough credit to qualify for the traditional FICO score. This includes young adults, immigrants and divorced individuals.
Alternatively, many individuals with past bankruptcy are looking for additional ways to prove their creditworthiness.
The FICO Expansion Score includes additional payments like rent and gives additional opportunity for people with thin or bad credit to demonstrate they are responsible consumers capable of paying obligations on time.
Additionally, by using our service, you have the ability for rent to be counted on other credit scores as well. Many mortgage lenders use custom credit scores, and in certain cases, rent can be applied in those cases as well.
The credit world is very complicated, with many reports/scores not available to consumers. Because of this, reporting your rent payments can only help you when it comes time to apply for financial products.
How much does it cost a renter to use Rental Kharma?
The cost of our service is a $29 annual fee. As part of signing up, a renter is able to report their last two years of rent payment and can continue to update this account with future rent payments.
As part of the fee, each member receives a free credit report and FICO credit score.
How soon can people expect their credit to begin improving?
Our service is unique in that we give renters the ability to report their last two years of rent payments when they start using the service. Because a renter can backtrack and report 24 months, there is the potential for dramatic credit improvement.
The extent to which an individual’s credit score can rise depends on their current credit situation and how many existing trade lines they have on their report.
Once a renter has finished registration and verification, they can expect to have rent hit their credit file in around 30 days. Once that happens, we will send the renter a free copy of their credit report and FICO expansion score.
To learn more about Rental Kharma, visit their website.
Photo source: guelphrealestateinvesting.com