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Do Rent to Own (RTO) Payments Help Build My Credit?

by | Dec 17, 2021 | 1st Time Home Buyers

Do rent to own payments help build your credit?

Building credit is one of the most important things you can do to set yourself up for a successful financial future. It’s also something that is really hard to do, particularly if you have a low-income job and little to no assets to use as collateral. You may also have student loans and credit card debt.

But you want to say goodbye to renting an apartment every six months and purchasing a home. This is a lofty financial goal and you will most likely not qualify for a mortgage loan if your FICO credit score is below 620. (Don’t know your FICO score, we can help. Click here to figure it out.)

How Rent to Own Impacts Your Credit Score

Through your research on purchasing a home, you’ve considered looking into rent-to-own homes. If that’s the case but you haven’t been qualified yet, you can click here to start that process (seeing what you might qualify for is a great first step, and pleasantly surprises most people.)

You’ve read a lot of these rent-to-own programs are good to help you build your credit, and you’ve read a lot of them don’t. So what is the right answer to the question: do my rental payments help build my credit and qualify for a loan at the end of the leasing period? (Also, if you’re sure you need help building your credit, you should click here to begin that process.)

It is one of the top questions we have received here at Rent to Own Home Finder, so we thought we would answer it once and for all. Let’s explore whether or not it will really help you build credit.

It is important to remember that the only accounts that show up on your credit report and boost or lower it are the accounts that are purposefully reported to the credit bureaus. Most rental agreements do not include the landlord’s obligation to report your rental payments to the bureaus unless you default on them, so it would ultimately not affect your score.

However, since you are looking to use your rental history to build your credit, you could ask your landlord or the seller of your rent-to-own home to report your payments, especially if you are loyally paying rent every month. 

If your landlord agrees and starts reporting your rental payments to the credit bureaus, your score could go up in the process. Just remember: this is up to you and your personal and financial responsibility. If you miss payments, your score will likely lower and you could risk losing the option to buy at the end of your lease or still be unable to qualify for a loan.

The best way to improve your credit while you live in a rent-to-own home and improve the likeability of being able to buy the property at the end of your lease agreement is to stay on top of your credit score. Check it and check it often. Pay down your debt – credit cards, student loans, car loans, etc. – as much as you can. Make your payments on time and, if you can, avoid opening new lines of credit. 

Rent-to-own contracts are beneficial agreements when done and researched properly. It is a financing strategy that could be an avenue for renters to become homeowners at the end of their lease period. Before signing any contract, do your research and look at the fine print to avoid problems in the future and understand the terms you are agreeing to. Ask the seller to report your rental payments to the credit bureaus to potentially boost your credit score and prove positive rental history to a future mortgage lender. 

Remember that the best first step to the process is typically to see if you qualify. Click here to see if you qualify for a rent to own home quickly and simply.



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