Does Rent to Own Effect Your Credit?

Rent-to-own refers to items paid for in installments with an option to either purchase the item outright, or return it to the store at the end of the rental contract. This normally includes products such as appliances, electronics and computers. Advertisements in rent-to-own stores often proclaim a "no credit check" policy for customers. If considering a rent-to-own purchase, it's important to understand how such a purchase may affect your credit.

FICO Credit Scores

A FICO credit score measures how well you handle your credit obligations. Note that 30 percent of the score reflects the level of debt that you have, 35 percent reflects your payment history and 10 percent is the mix of credit types on your report. The length of your credit history is 15 percent and the number of new credit inquiries on your report represents the remaining 10 percent. FICO scores have a credit range of 300 to 850 and the higher the score, the better your credit.

Significance

According to Experian, credit bureaus do not consider rent-to-own purchases as traditional credit and therefore, such payments do not affect your credit score. Traditional credit refers to credit items such as credit cards and auto loans. A rent-to-own credit obligation is alternative credit and does not report to the credit bureau at the time of publication. Other types of alternative credit include utility payments, such as water, gas and electric, medical payment arrangements with doctors and payments to certain cell phone providers.

Considerations

Rent-to-own may not harm your credit, but it can harm your wallet. Companies that lease rent-to-own products often charge a higher price that's three to four times more expensive than a traditional store, according to Lawyers.com. These companies implement higher prices because of the high-risk nature of the transactions, including the risk that renters of the property will make late payments on the rented property or not make the payments at all, which can lead to additional costs for collection.

Warning

Rent-to-own can be a convenient option for consumers, but it does require the renter to maintain his end of the contract, which means paying for the merchandise or returning it. If you sign a rent-to-own agreement and take possession of the property, but fail to make the agreed upon payments, the rent-to-own company has the right to seek repossession of that item. The company may also decide to pursue criminal charges against you for theft of property.