Rent-to-own stores offer seemingly low monthly payments and the option to buy products for a reduced price after you've rented them for a specific amount of time. They give you the feeling that you can try a product before you buy it. However, the total cost of the item ends up being much more than it would have been had you just purchased it outright, and buying something this way probably won't help your credit score either.
Credit Bureau Reporting
Rent-to-own contracts let you rent an item while giving you the option to purchase it in the future for a reduced price. According to credit bureau Experian, payments on rent-to-own contracts have not proved predictive of how you'll treat other debts, so they aren't included on your credit report the way a mortgage or credit card account would be. MSN Money reports that these places never report your contract as a trade line to credit bureaus, so the contract won't help your credit score.
Potential for Negatives
Even though your on-time payments to a rent-to-own store won't help you, your delinquencies can hurt you. If you end up owing money on the contract, that debt could end up on your credit report. For example, say you keep that couch too long and end up owing the rent-to-own store money. If you don't pay it back, the debt might be turned over to a collections agency that will report your nonpayment to the credit bureaus, to the detriment of your credit score.
Beware of Scams
MSN Money warns you to be wary of any rent-to-own store or store employee who says buying from them will improve your credit score. Buying with a rent-to-own contract typically costs you 2.5 times the price you would pay for the same product at a retail store. Rent-to-own stores can do this because the typical customer can't get credit elsewhere because of a poor credit score. If a store does offer to report to the credit bureaus, get that promise in writing.
Cost-Effective Ways to Improve Credit
Even if you do find a store promising to report to the credit bureaus, you can find less costly methods of improving your credit score. Use the extra money you would pay for a product at a rent-to-own store to pay down other debt and get all your accounts current. Use your savings to build an emergency fund that you can draw on as needed to avoid missing debt payments and hurting your credit score.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."