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Are rent to own loans good for my credit?

Dear Readers,

People often ask if rent-to-own loans help build a credit history. Unfortunately, the answer is no, because such loans are not currently reported to the credit reporting companies.

What rent to own loans are

With a rent-to-own home purchase contract, the tenant pays monthly rent to the homeowner, and a portion of the rent paid each month is put aside towards the down payment for the eventual purchase of the home.

Rent to own loans can be helpful

However, Experian does include positive rental payment data on credit reports when it is reported. It might be wise to inquire with your prospective landlord to see whether they would be reporting any rental payments made as part of a rent-to-own agreement.

Even if the rental payments are not reported, rent-to-own loans can still be beneficial for people who might not otherwise have strong enough credit to purchase a home or the means to save for a down payment. Keep in mind that some contracts may require the tenant to be responsible for some of the home maintenance costs while they are still renting.

Before deciding to enter into a rent-to-own contract, both buyer and seller should seek legal advice in order to understand the benefits and the risks.

Thanks for asking.
The “Ask Experian” team