Picture of Christopher A. Hopkins, CFA

Christopher A. Hopkins, CFA

Credit building apps: are they worth a try?

Most Americans well understand the importance of a good credit score and work diligently to achieve and maintain a strong history of debt management. Numerical ratings like FICO and VantageScore are widely used for most lending decisions as well as pricing insurance, evaluating rental applications, and even vetting job applicants.

This is a problem for many consumers. According to, 47 million Americans are considered subprime (below 600), an increase of 1.2 million over the past year. Another 45 million people are considered “invisibles”, with no credit history at all. In response, a host of new products have appeared purporting to help build or boost credit scores, some good, some mediocre, and some real turkeys. A free or low-cost credit building app can be worthwhile especially if you are at the margin but beware exaggerated promises and hefty fees and mind the details.

The familiar FICO score was first introduced in 1989 by the Fair Isaac Corporation and became the de facto standard for underwriting mortgages, car loans, and credit cards. A competitive product from the 3 reporting agencies, called VantageScore, has also gained market share, particularly in credit card issuance. Both scores attempt to distill a borrower’s creditworthiness onto a single scale ranging from 300 to 850 and while not the sole criterion, this score remains a central factor in lending decisions.  About 70% of consumers maintain scores considered to be good, averaging 717 according to FICO.

For those with subprime or nonexistent records, there are several options to assist in establishing or improving their profile.

Mortgage loans represent a major source of data at the three credit reporting agencies, Experian, TransUnion, and Equifax. However, no payment history has typically accrued to the 30% of Americans who rent even though these outlays average about a third of their total income. Now some newer applications provide an opportunity to report and benefit from timely rent payments as well.

Experian Boost is a free product that allows tenants to include rent as well as utility bills in their Experian credit file by linking to the bank account from which payments are sent. TransUnion has a similar offering called eCredable. Subscribers can preview the impact of these subscriptions before deciding to proceed and can cancel at any time. Prepare to be confronted with persistent upselling, but just say no.

Dozens of stand-alone products have also popped up to report rent payments. Most charge setup and monthly fees, but a couple of notable exceptions are Piñata and Self. Piñata is free and reports to TransUnion but includes all 3 agencies if your landlord signs up for a free account. Self is also free for the basic service including all 3 bureaus and can also report utility bills and up to 24 months of history for an additional fee.

According to Fannie Mae, 17% of declined mortgage applications from first time home buyers would have been approved if monthly rental payments had been included in their credit file.

Aside from these tenant-initiated apps, there are a growing number of platforms that a landlord or property manager can adopt that benefit both sides of the transaction. Many of these services collect rent on behalf of the property owner by debiting the tenant’s account and then reporting the payment to the credit bureaus. Housing finance giant Fannie Mae launched a pilot program to report tenant rents for multifamily properties financed through entity. Zillow is the latest entrant, marketing property management software including payment collection and reporting to Experian. It is worth asking if your property owner or manager has or would consider a reporting option. Only 5% of rent payments currently count toward a credit score.

There are some limitations. Many apps report only to one of the three bureaus and would have no impact on the FICO score from the others. Rent and utilities also only count in the latest versions of the score, Fico 9 and 10. FICO 8 remains the most widely used version, but version 9 is gaining, and the VantageScore does include rents.

Credit repair apps tout other options for boosting your score, but step lightly as the costs can mount. One example is called a credit repair loan, a small dollar loan specifically designed to create a record of on time repayments. Many of these carry high interest rates, often 12-16%, plus monthly fees.

Credit rebuilder loans from a local credit union or local bank could be a much better option depending on your situation. The institution deposits a CD into a restricted account that earns interest while you build a record of monthly payments for 12 – 24 months, after which the balance is yours. These loans carry much more reasonable interest rates and can be effective in helping repair a dented score.

Be sure to understand all the terms, conditions, and costs before signing up. For example, how does the reporting agency deal with a tenant-landlord dispute? Some states allow a renter to withhold rent if the owner is deficient in maintenance; would these be reported as late?

Of course, building a strong credit file is good old fashioned hard work, paying bills promptly, watching your credit balances, and building a record over time. But for some consumers, especially renters, a free app can provide a quick bump that just might make the difference in getting that mortgage.

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