People who pay their rent on time can establish credit scores or significantly raise low scores if the payments are reported to credit bureaus, new research found.
A study published this month by the Urban Institute, a think tank in Washington, D.C., looked at two groups of tenants recruited in 2021 and 2022. The members of one group began having their rent payments reported to credit bureaus immediately after signing up to participate in a program offered by their properties. The members of the other group had their rent reporting delayed by four months.
The study found that rent reporting leads to “large, statistically significant increases” in the likelihood of having a score and of having at least a “near prime” score — a minimum of 601 on a scale of 300 to 850.
The research was the first rigorous, randomized study of “positive” rent reporting, said Brett Theodos, a senior fellow at the institute and an author of the study, which enrolled 269 participants in affordable housing programs in five states and Washington. In positive rent reporting, only payments made on time are supplied to credit bureaus.
The study used VantageScore, a competitor to the widely used FICO score. VantageScore, which uses a scale similar to FICO’s but assigns different weights to certain factors, was founded by the three big credit bureaus: TransUnion, Equifax and Experian.
Still, some consumer advocates remain wary of rent reporting, saying it may pose risks to vulnerable renters.
How does positive rent reporting work?
In positive rent reporting, late or missed payments are excluded. The approach is seen as a promising way to help people obtain or improve credit scores without taking on extra debt. (Failure to pay rent, however, can eventually appear on credit reports if a landlord sends a delinquent account to collections.)
Rent is the biggest bill that vulnerable families pay each month, said Debi Redding, executive director of the Homeless Coalition of St. Johns County in St. Augustine, Fla., and “it doesn’t seem right” that they don’t build credit from paying it in the same way that homeowners build credit by paying a mortgage. The coalition operates housing for families with children who were previously homeless. Most of those families lack a credit history or have poor credit.
“I’m a huge proponent of rent reporting,” Ms. Redding said.
Families in the coalition’s housing, she said, typically aim to become financially stable before seeking market-rate housing — which has become increasingly difficult, as rents have skyrocketed — or seeking to buy a home of their own. Building credit through rent reporting, combined with down-payment assistance, can help families achieve that goal, she said.
Miya Morris, director of resident services with Jubilee Housing, a nonprofit housing provider in Washington, said that even if someone didn’t aspire to become a homeowner, higher credit scores could create a pathway to more affordable credit to pay for other needs, like adult dental care. “It’s an opportunity to level the playing field,” she said.
Is rent reporting new?
Traditionally, rent hasn’t been included on credit reports because it isn’t considered debt. And in the past, it was challenging to have rent reported to credit bureaus, said Dara Duguay, chief executive of Credit Builders Alliance, which helps nonprofit housing providers adopt rent reporting and was a participant in the study. Housing groups and landlords, she said, typically had to go through a time-consuming process to become qualified to submit data to the bureaus.
But in recent years, financial technology firms like Esusu, TurboTenant, Self and Piñata have emerged to submit the information to credit bureaus. Now, renters increasingly have the opportunity to have their payment history reported, either through landlords that work with the companies or on their own, using the new digital tools. Some services even include on-time rent payments made before tenants enroll.
Many states are testing the programs, and at least one, California, has passed laws requiring many property owners to offer rent reporting to tenants as a service.
Is there a fee for having your rent reported?
Reporting firms may charge a monthly fee, sometimes as much as $10. Nonprofit housing groups, however, often receive grants to cover the cost of providing the service to tenants.
What if a tenant participating in rent reporting misses a payment?
TransUnion, which provided anonymous credit data for the Urban Institute study, said that with positive rent reporting, only on-time payments were reflected on its credit reports and factored into credit scores. If a tenant is tardy or misses a payment, it’s not explicitly reported as late or delinquent. Instead, an “X” appears for the account that month on the credit report, and the information doesn’t contribute to the borrower’s score.
“The X signifies no information rather than negative information,” Maitri Johnson, head of TransUnion’s tenant and employment screening business, said in an email. Lenders, she added, use their own judgment about how to interpret the report.
TransUnion’s own data, similar to the new study’s finding, shows that people with low or no scores reap the most benefit from rent reporting. “It does make a difference to the people who need the most help and support,” Ms. Johnson said during a webinar hosted by the institute.
Can there be risks to tenants from rent reporting?
Consumer advocates generally say positive-only rent reporting may benefit some tenants. But Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center, said the group vehemently opposed “full-file” reporting, in which late or missed payments are included. Negative rent information can be disastrous for struggling families if they fall behind on their rent even once, she said. Landlords are unlikely to rent to anyone with a record of late payments or may demand very high security deposits, she said, potentially locking tenants out of rentals and even pushing them into homelessness.
And, she said, the risk of negative reports may dissuade tenants from exercising their right to withhold rent if, say, a unit has hazardous conditions or lacks heat. One solution, the center has said, would be to ban the use of credit scores and reports in tenant screening, though efforts to adopt such policies in some states have not gained traction.
Are tenants enrolled in rent reporting automatically?
Consumer advocates generally prefer “opt-in” programs, in which tenants choose to sign up, rather than programs that automatically enroll renters but give them the option to withdraw (known as “opt out”), because opt-in programs give them more control over how their personal data is used.
Automatically enrolling tenants under opt-out models, however, makes it easier to build and manage participation, Ms. Duguay of the Credit Builders Alliance said. (Automatic enrollment has become common for other financial products, like workplace retirement accounts.)
Ms. Morris at Jubilee Housing said the group had initially offered rent reporting on an opt-in basis but had found that many tenants needed extensive support using unfamiliar digital tools. The group recently switched to a new provider, she said, which automatically signed up tenants but allowed them to opt out if they chose. “We’re trying to reduce barriers to access,” she said.
What if I already have top-notch credit?
Consumers who already have top-tier credit scores are unlikely to see much of a bump from rent reporting, according to the study. Researchers didn’t find a significant effect on the people with a “prime” credit score: 661 or above. For those tenants, it may not be worth participating in rent reporting, especially if they must pay a monthly fee.
Can rent reporting have other benefits?
The Urban Institute study also found that total debt for participants in the group whose rent payments were immediately reported fell compared with the other group. “We were surprised,” Dr. Theodos said. It might be that by becoming more aware of the importance of good credit, he said, participants changed their behavior and actively managed their debt.
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