When you can’t pay the rent, the effects can spell disaster for both your short-term and long-term credit. The extent of damage to your credit record from rent default depends on how your landlord handles your nonpayment. If your default lands on your credit report, it will be major enough to affect not only your ability to rent in the future but also your ability to secure other credit as well.
Credit Report
As you conduct your business, you accumulate a report of your activities. Your credit report is a compilation of your personal information, employment information, the amount of credit you have and the associated terms, and your debts, according to the Federal Reserve. Your credit report also contains public record information – judgments, tax liens and bankruptcy filings. Lastly, your credit report also lists any person or company that has requested a copy of your report, often within a recent period, such as the preceding 12 months.
Credit Bureaus
The three major credit bureaus are TransUnion, Equifax and Experian. Each of these bureaus conducts separate credit-reporting services, receiving reports about consumer credit activity. Generally, merchants and lenders need a subscription service with a credit bureau to make reports about consumers. Lenders don’t usually make reports to all three credit bureaus, so each one will contain different information about you. That’s why it’s important to request a free credit report from all three bureaus when you want to know your credit status. A rent default that makes it to your credit report will stick around for seven years. The time a lawsuit or unpaid judgment stays on your credit report will be seven years or longer, depending on your state's statute of limitations, according to the Federal Reserve website.
RentBureau
As of 2010, Experian runs “RentBureau,” which is a separate database that collects data about rental payments. RentBureau holds data on about 7 million renters. The U.S. has about 99 million renters. This shortfall means that RentBureau is not a guarantee that a rent default will make its way to the database. RentBureau has plans to improve software that will make it easier for small landlords to report nonpayment and default issues, if they choose to, according to the Chicago Tribune.
VantageScore
In 2006, the three major credit reporting bureaus came together to form VantageScore. This company developed a formula to score consumer credit in a consistent way to produce a credit report that is an alternative to reports from the individual bureaus. VantageScore has always included rent payments in credit scoring.
Additional Rent Reports
FICO and CoreLogic, two credit-reporting agencies, also have plans to institute a credit report score that uses rent history from landlords, according to The New York Times. Other nontraditional payments and accounts that these companies will incorporate into credit reports include payday loans, child support and possibly utility and mobile phone accounts.
Landlord Reporting
The bottom line rests with whether your landlord reports your default to the credit bureaus. If you rent from a big management company with extensive resources and connectivity, it’s more likely that your landlord will report to credit bureaus. If you rent from someone who manages just a few units, you may be lucky to have a landlord who doesn’t have the time or resources to report a default. Even if your landlord doesn’t report your default to the national companies, you may still run into trouble renting after a default. Other ways of verifying a renter’s suitability include references from other landlords, previous evictions and background checks -- information about your financial and criminal history -- from state government agencies, law enforcement or private investigation firms.
