Shouldn’t You Get Credit for Paying Your Rent on Time?
By Dara Duguay, Executive Director
Credit Builders Alliance
A good credit score can save a person a significant amount of money in interest and fees over the course of a lifetime. But those with bad credit have to pay, in more ways than one: landlords and utility companies often require a large security deposit; prospective employers may include credit history in a background check; many auto and property insurers price their products, in part, based on credit histories; and a mortgage or small business loan applicant’s credit history could be the difference between obtaining a loan that allows him or her to build a major asset and getting no loan at all.
Thirty-five percent of U.S households live in rental housing. That percentage is higher for families at the lower end of the income spectrum. Of those low-income renters who are among the 64 million U.S. consumers with no or subprime credit, many lack access to opportunities to establish or build credit. Although homeowners and renters alike see the impact of failing to meet their housing obligations on their credit reports, most renters’ on-time housing payments are not reflected on their credit reports or in their credit scores — even though, for most renters, it is one of their largest and most consistent monthly payments. Without this recognition of creditworthy behavior on a renter’s credit report, lenders and other businesses develop an incomplete and negatively skewed assessment of the credit risk posed by many otherwise financially responsible low-income households. This can make it difficult, if not impossible, for these struggling households to get and stay ahead in today’s economy.
However, a pilot program has shown that there is hope. With generous support from the Citi Foundation and in collaboration with Experian RentBureau and eight pioneering affordable housing providers, Credit Builders Alliance (CBA) spent the last three years catalyzing rent reporting as a credit building opportunity for low-income renters served by the affordable housing industry. In 2013 and 2014, CBA conducted a pilot test to support eight affordable housing providers (AHPs) in becoming credentialed with Experian RentBureau to begin and sustain rental payment reporting on behalf of 1,255 low-income residents. As a result of the Power of Rent Reporting pilot, CBA found that:
First, rent reporting offers a significant credit building opportunity to residents living in affordable housing. After isolating the impact of including rental payment history on participants’ credit reports, CBA found:
- All residents participating in the pilot who initially had no credit score had either a high nonprime or prime score with the inclusion of their rental payment history.
- A large majority (79 percent) of participants experienced an increase in credit score, with an average increase of 23 points.
Second, rent reporting is a viable financial capability strategy for affordable housing providers seeking to help their residents achieve financial stability. Bringing it to scale, however, requires more standardized reporting policies and procedures across the credit bureaus, greater technical capacity on the part of affordable housing providers to report payments, and further investigation of solutions for increasing resident participation as a result of the opt-in requirements for federally funded affordable housing providers.
Visit CBA’s website to learn more about the pilot and its results.
