All this has huge implications for renters who hope one day to buy a house. To qualify for a mortgage, they’ll need good credit scores. Young, first-time buyers are especially vulnerable: They often have thin credit files with few accounts and would greatly benefit from having their rent histories included in credit reports and factored into their scores. Without a major positive such as rent payments in their files, a missed payment on a credit card or auto loan could have significant negative effects on their credit scores.
You probably know folks like these — sons, daughters, neighbors, friends. Or you yourself may be one of the casualties of the system, a renter with a perfect payment history that creditors will never see when they pull your credit. Think of it this way and the great divide gets intensely personal.
But here’s some good news: Growing numbers of landlords are now reporting rent payments to the bureaus with the help of high-tech intermediaries that have set up electronic rent-collection systems for tenants. One of these, RentTrack, says it already has coverage in thousands of rental buildings nationwide, with a total of 100,000-plus apartment units, and expects to be reporting rent payments for more than 1 million tenants within the year. Two others, ClearNow and PayYourRent, also report to one of the national bureaus, Experian, which includes the data in consumer credit files. RentTrack reports to both Experian and TransUnion.
Why does this matter? Two new studies illustrate what can happen when on-time rent payments are factored into consumers’ credit reports and scores.
RentTrack examined a sample of the tenants in its database and found that 100 percent of renters who previously were rated as “unscoreable” — there wasn’t enough information in their credit files to evaluate — became scoreable once they had between two months and six months of rental payments reported to the credit bureaus.
Tenants who had scores below 650 at the start of the sampling gained an average of 29 points with the inclusion of positive monthly payment data. Overall, residents in all score brackets saw an average gain of nine points. The scores were computed using the VantageScore model, which competes with FICO scores and uses a similar scoring scale of 300 to 850, with high scores indicating low risk of nonpayment.
Experian, the first major credit bureau to begin integrating rental payment records into credit files, also completed a major study recently. Using a sample of 20,000 tenants who live in government-subsidized apartment buildings, Experian found that 100 percent of unscoreable tenants became scoreable, and that 97 percent of them had scores in the “prime” (average 688) and “non-prime” (average 649) categories. Among tenants who had scores before the start of the research, fully 75 percent saw increases — typically, 11 or more points — after the addition of positive rental information.
Think about what these two studies are really saying: Tenants often would score higher — sometimes significantly higher — if rent payments were reported to the national credit bureaus. Many deserve higher credit scores but don’t get them.
Matt Briggs, chief executive and founder of RentTrack, says that for many tenants, steady rent payments “may be the only major positive thing in their credit report,” so including them can be crucially important when lenders pull their scores.
Justin Yung, vice president of ClearNow, told me that “for most [tenants], the rent is the largest payment they make per month and yet it doesn’t appear on their credit report” unless their landlord has signed up with one of the electronic payment firms.
Is this something difficult or complicated? Not really. You, your landlord or property manager can go to one of the three companies’ Web sites (www.renttrack.com, www.clearnow.com or www.payyourrent.com), check out the procedures and request coverage. Costs to tenants are either minimal or zero, and the benefits to the landlord of having tenants pay rents electronically appear to be attractive.
Everybody benefits. So why not?
Ken Harney’s e-mail address is email@example.com.