What multifamily owners need to know about rent reporting for credit
Housing is often a renter’s largest monthly expense. But while mortgage payments can help homeowners build positive credit histories, rent payments typically have not done the same for renters — until now.
Rent reporting services allow renters to ensure their rent payments are reflected on their credit reports. While the potential impact depends on each person’s financial situation, it can help renters build credit history, especially if they’re new to credit. There are also perks for property owners: Rent reporting might incentivize on-time rent payments and make properties stand out from the competition.
Considering offering rent reporting at your properties, or have a renter who wants to report their payments? Eligible Story users can report payments for 12 months for free through financial technology company Self. After 12 months, users can continue Self Rent and Bills reporting by signing up for a paid subscription.
How rent reporting to credit bureaus can benefit property owners
Having a low credit score — or lacking the credit history needed to get one — can make it difficult for people to qualify for loans and other financial products, force them to pay higher interest rates and insurance premiums, or even make it harder to find housing.
Stronger credit can help renters improve their financial security, and that’s good news for property owners counting on their rent payments.
On-time rent payments: Knowing rent payments contribute to credit scores could give residents an additional incentive to make timely payments. In fact, about 73% of renters said they would be more likely to pay rent on time if those payments were reported to credit bureaus, according to a 2019 TransUnion survey.
Beat competing properties: Offering to report rent payments might also help property owners stand out from the competition. Given a choice between two otherwise identical units, 67% of renters told TransUnion in a 2019 survey they’d choose the apartment that offers rent reporting.
Government assistance and incentives: There’s a growing movement behind rent reporting solutions, and giving renters the option could help property owners meet regulatory requirements or qualify for incentives. Freddie Mac is expanding a pilot program offering investors seeking multifamily loans closing cost credits when they report rent payments. And in California, owners of housing developments with at least 15 units that receive government assistance must offer rents the option of having their rent payments reported, under a 2020 law.
How rent payments affect renters’ credit
The impact reporting rent payments can have for renters depends on their current credit and financial situation.
- No score: People who don’t have a credit score can see the most benefit, as reporting rent payments can help them establish a score, says Richard Reeve, Chief Program Officer at Credit Builders Alliance. It’s a big group: Roughly 45 million Americans either were credit invisible or had credit records without enough credit history to receive a score, according to a 2015 report from the CFPB.
- Low score: Renters with low scores who reliably pay rent on time can see their credit score rise, according to a report on a Credit Builders Alliance rent reporting pilot.
- Established credit history: If a renter already has several lines of credit, a significant amount of debt or a credit score in the mid-600s or higher, adding rent payments may not move the needle as much, Reeve says.
- At risk of missing payments: Rent reporting isn’t a good option for renters who struggle to pay rent on time, Reeve says. Still, there are protections. Some rent reporting programs share only positive payment information, and renters can choose to stop reporting payments.
Research supports the idea that reporting rent payments can improve access to credit for some people, particularly those who don’t have the credit history needed to get a score under common credit scoring models, according to a report from nonprofit organizations the Urban Institute and FinRegLab. In studies by the U.S. Department of Housing and Urban Development, Credit Builders Alliance and Office of the New York City Comptroller, people who could receive a credit score when rent payments were included in their credit history often had prime or near-prime credit scores.
It's important to note that not all credit scoring models will factor rent payments into a credit score, even if they’re reported to credit bureaus. Newer models, like FICO 9 and 10 and VantageScore, will reflect rent payments, but older models won’t.
However, even if a scoring model doesn’t include rent payments in the credit score, the credit report will still show rent payments reported to credit bureaus, says Reeve, which could help the renter prove their ability to consistently make payments.
How to help renters report rent payments
Property owners can report rent payments directly to one or more credit bureaus, but it can be very time consuming, according to Credit Builders Alliance, which has resources to help property owners and renters navigate rent reporting.
Working with a company that handles reporting rent payments is a lower lift. Factors to consider when choosing a rent reporting solution include:
- Are payments reported to all three major credit bureaus?
- Will all payments be reported, or only positive, on-time payments?
- What steps will property owners and renters need to take to report payments each month?
- How easy is it for renters to enroll in the program, and leave if they choose to stop reporting?
- How much will it cost?
Renters who use Story can find out more about reporting rent payments with Self by signing into their account and selecting the “Rent reporting by Self” link on the left-hand navigation bar.
By Lauren Zumbach from Story by J.P. Morgan