You can use rent-to-own arrangements to buy TVs, furniture, cars and even houses. As with a mortgage or car loan, you normally make a monthly payment for a set period of time. However, while timely mortgage payments may help your credit, your rent-to-own payments usually have no impact on your credit score at all. If a rent-to-own agreement does appear on your credit report, its usually going to hurt rather than help your score.
The consumer credit reporting agencies, Equifax, Experian and TransUnion, are all subject to the Fair Credit Reporting Act. This act lays the ground rules for what finance firms can report and how credit bureaus use that information. Mortgages, credit cards and automobile loans are conventional credit products that can appear on your credit report. Rent-to-own agreements aren't technically credit agreements because you're renting or borrowing something rather than buying it. Rent-to-own deals work like cell phone plans because you take possession of something and enter into a payment plan but you're not borrowing money.
Finance firms and individuals must meet certain requirements before the credit bureaus consider their information in your score. For example, if you buy an owner-financed home from an individual, it's unlikely the owner is willing or able to report the loan to the credit bureaus. Stores that arrange rent-to-own TVs and furniture typically don't meet these requirements. There is one possible exception in the auto industry. Some lease agreements include rent-to-own provisions that will be listed on your credit report. Late payments on a lease can hurt your score just as much as a missed mortgage payment.
Alternative Credit Reports
In 2011, Experian launched the Rent Bureau Division to gather information on residential rental agreements. If you buy a home with a rent-to-own deal, it's possible the landlord may report the arrangement to Experian. However, this report is not to be confused with the standard credit report lenders use to judge applications for credit cards and loans. For one thing, the rent report is limited to positive payment information. Other firms compile consumer reports that include details of utility payments, cell phone plans and rent-to-own agreements. However, lenders typically only use the traditional credit when it comes to making borrowing decisions.
A rent-to-own agreement of any kind could make its way onto your credit report if you end up breaking the lease. If this happens, the owner may take you to court. Credit bureaus regularly check court records for judgments and liens and that information does get added to your credit report. Unsurprisingly, a bad debt or judgment can cause your score to plummet since lenders are wary of people who fail to settle their debts.
- Experian: Rent to Own Payments are Not Included in Credit Reports
- Fox News: Rent-to-own Home Payments Unlikely to Aid Credit Score Read more: http://www.foxbusiness.com/personal-finance/2011/02/22/rent-home-payments-unlikely-aid-credit-score/#ixzz1wb0Z3E84
- Experian: Broken Apartment Lease Can Affect your Credit Report
- Experian: In the Market Model
- My FICO: What's in Your FICO Score?
- Hemera Technologies/PhotoObjects.net/Getty Images
- Will Going Over My Limit on My Secured Card Affect My Credit Score?
- Why Am I Rejected for a Credit Card?
- Tips for Protecting Your Credit Card
- Do Credit Card Declines Affect Your Credit Report?
- How to Check the Details on a Credit Card
- Credit Cards With a Low Limit
- Everything About Credit Cards
- What Happens If the Credit Card Terms You Applied for are Different Than You Received?
- Concerns About Giving Credit Card Information Online
- What Does Being Turned Down for a Credit Card Do to Your Credit?