Paying Rent in California? It Could Now Help Your Credit Score

As buying a home becomes more expensive each year, families in California are renting for longer periods of time. According to the most recently available data, more than 40% of Californians are renters — a higher proportion than any other state in the country except New York.

One of the many economic benefits of owning your own home, in addition to boosting your family’s wealth and long-term stability, is building credit through mortgage payments. Now, a recently enacted California law also offers renters a way to use their rent payments to do the same thing — as long as they pay on time.

With the passage of Assembly Bill 2747, tenants can ask their landlord to share rent payments made on time — however, their lease defines that timeframe — to at least one credit bureau. Assemblymember Matt Haney, D-San Francisco, authored AB 2747 to give tenants an additional tool to boost their credit score, said Nate Allbee, Haney’s communications director.

“People take paying rent seriously,” Allbee said. “What we’re hoping is that people who are making this financial commitment and doing the right thing, see their credit increase.”

So, how does sharing your rent payments with credit bureaus work if you choose to take advantage of this new law? Keep reading to learn what’s expected of landlords and what tenants should know before they make a decision about sharing this information.

How does reporting rent payments to credit bureaus work?

In the United States, three major credit bureaus — Equifax, TransUnion­ and Experian — collect data on individual consumers who take out loans or use credit cards. These companies then use that information to calculate a person’s credit score: a number that impacts their ability to take out a major loan, like a mortgage, or even to secure their next apartment.

Each credit bureau has different ways of calculating somebody’s credit score and may prioritize payments for certain loans — like a mortgage or car payment — more than others. But generally, the better you are at paying back your loans and other financial obligations on time, the easier it will be for you to increase your credit score and have access to more credit — and larger loans — in the future.

Landlords can already share late rent payments with credit bureaus, which ends up hurting tenants’ credit scores. However, under AB 2747, a tenant can choose for at least one of these credit bureaus to be notified when they make an on-time rent payment. However, it’s the responsibility of the landlord — not the tenant — to make sure that credit bureaus receive this information.

As of April 1, the law said California landlords must offer their tenants the option to share on-time payments with credit bureaus at the time of signing the lease. And even if the tenant declines at the time, the landlord is expected to then offer this option again at least once a year.

If you’re a tenant on an existing lease, according to the law, your landlord should have spoken to you by now about this option — specifically, at least once between the time span of Jan. 1 and April 1.

If your landlord didn’t do this, the law doesn’t specify any penalties for landlords that failed to have these conversations during that time period — but as a tenant, you can still bring them up now.

“We want people to feel empowered and strong — the law is on your side here,” said Allbee, adding that landlords have “a responsibility to be updated with the laws of the state of California.”

Tenants: Before you make a decision …

The goal behind AB 2747 is to help tenants improve their credit scores. But just how a credit score is calculated is pretty complicated — and can change depending on the credit bureau you’re looking at.

“There are so many different factors that go into your credit score,” said Lily Liu, CEO of Piñata, which has an online system where California landlords can share on-time rent payment history with all three credit bureaus at once. These factors include “consistency of payments and history of tradelines,” she said.

If you’re concerned about your ability to keep up these consistent, on-time payments over a longer period of time, you should factor this in before making a decision regarding AB 2747, said Leah Simon-Weisberg, legal director for the tenants rights group Alliance of Californians for Community Empowerment (ACCE).

“Are you ready to make a long-term commitment to not only paying on time, but also paying for this reporting?” she said. Simon-Weisberg has joined other housing advocates in criticizing AB 2747 for having tenants themselves cover the costs of sharing payment information with credit bureaus.

“Tenants shouldn’t have to pay for credit reporting, because you don’t pay your credit card company to do the same,” she said.

It’s still unclear how credit bureaus will process on-time rent payment data from tenants, she said. But she urged those who do decide to move forward with sharing their information to take the long view.

“Make a long-term commitment in doing it,” she said. “Because if you’re only reporting positive payments, and then there’s nothing, [credit bureaus] are going to assume that it’s negative.”

Who is exempt from this new law?

Individual landlords who own a property with 15 or fewer units are excluded from this new requirement.

But if your landlord owns 15 or less units as either a corporation, an LLC or real estate investment trust — rather than as an individual — they will have to offer tenants the option to share on-time payments with credit bureaus.

So, to give real-world examples, if you’re renting a room at a friend or family member’s house and that’s the only home they own, this law does not apply to your situation. However, if your landlord is a corporation that owns three different apartment buildings throughout the city, they must follow AB 2747.

What should tenants and landlords know about complying with AB 2747?

If you’re a tenant …

If you decide that you do want your landlord to share your on-time rent payments to a credit bureau, you are expected to pay your landlord an additional $10 each time you want your information shared.

This fee is meant to cover the costs for the landlord to pass this information on to a credit bureau, and is intended to cover the costs of their time and any fees charged by the company itself. However, the fee cannot be greater than $10 each month.

The tenant gets to choose when they want their on-time rent payments shared, and how frequently. For example, even if you pay your rent on time every month, you could tell your landlord to report only your payments during the first six months of the year — and you’d only have to pay your landlord the $10 fee for those six months.

Your landlord also cannot penalize you for not paying the $10 fee, and they can’t take it from your deposit or add it to your rent payment. Conversely, if a tenant fails to pay the $10 fee, the landlord is not obligated to report their payment information that month — even if it’s on time.

What if you want to stop having your landlord share your rent payments with credit bureaus? You can opt out at any time, but the law requires you to wait at least six months before you request to have your on-time payments shared once again.

If you’re a landlord …

If your tenant wants you to report their on-time payments to a credit bureau, you’ll have to provide them with a contract that specifies:

• Which credit bureau you’ll be sharing their information with
• The monthly fee you’ll charge them for doing so (which cannot exceed $10)
• Instructions on how to opt out in the future.

The California Apartment Association (CAA) offers its members sample versions of these contracts for both new tenants and existing tenants.

CAA has additional guidance for landlords on complying with AB 2747.

As for passing on your tenants’ information to a credit bureau, each credit bureau has different rules on submitting this type of data. Landlords can also use a paid platform like Piñata, which helps landlords comply with this part of the law.

“Typically, we’re plugging straight into their rent payment processing system or property management software,” said Liu.

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