How to make renting work for your financial goals

Renting is just throwing money away.

Renting is like paying someone else instead of paying yourself.

You may have heard these opinions from family and friends, but it's not that simple.

In some areas (looking at you, San Francisco), renting is far more economical than buying a home. But renting can be used to fatten your credit profile as a steppingstone to your financial goals.

Millennials are delaying homeownership and staying in rentals longer than previous generations, multiple studies show.

Student debt — that bane of millennial existence — is one factor pushing back the age of homeownership. Rising rents and home prices coupled with slow wage growth also make it hard to save for a down payment.

The vast majority of Americans — nine out of 10 — still equate homeownership with personal success and economic security, according to a survey released in July by the website Apartment List.

You cannot fully control how much money you make. But your credit score — the key to qualifying for rewards credit cards, financing a car or even a home — is largely under your control. Rent payments can be used to beef up your score.

For many millennials, rent payments are a great way to demonstrate responsible behavior to potential creditors. But rent payments — unlike credit card, mortgage and loan payments — don't automatically appear on credit reports. And your credit scores rely on what's in your credit reports.

There are two ways to get rent added to your reports:

Two of the three major credit bureaus — Experian and TransUnion — accept payment information from landlords.

Both bureaus' websites have a simple process for landlords to sign up.

A 2017 TransUnion study followed 12,000 renters for a year. Scores rose 16 points on average within six months after rent reporting began, says Maitri Johnson, vice president of multifamily at TransUnion.

The largest increase was for scores below 620, generally considered bad credit.

With rent reporting, payments show up on your credit report like any other account.

Positive payments help your score; missed or late payments can damage it. If there are errors, you can dispute them with the bureaus.

Rent reporting lets you get credit for something you are already doing.

FICO 8, the most widely used score by lenders, and the FICO versions used in mortgage lending do not use rental information to calculate scores.

But newer versions do, such as FICO 9 and FICO XD. VantageScore, FICO's main competitor, also uses rental payment information.

"Even if it's not something considered in your score, it's still cosmetically on your credit report," said John Ulzheimer, a credit expert who has worked at Equifax and FICO. "A lender considers information in good standing, and that's going to benefit you as an applicant."

If you use a reporting service, you will pay a monthly fee ranging from $6.95 to $9.95 depending on the company, plus a one-time enrollment fee of $25 to $95. Extras like adding past rental information cost more.

Ulzheimer points out that traditional credit-building methods are more effective than rent reporting:

• You can become an authorized user on someone else's credit card, preferably someone with a long history of responsible credit use.

• You can get a secured credit card, which requires an upfront deposit. Charge a small amount on it every month and always pay on time.

• You can apply for a credit-builder loan, available at credit unions.

Your monthly payments are reported to the credit bureaus. The money you borrow is released to you once the loan is paid off.