The vast majority of Mom and Pop landlords are the backbone of the rental market. Yet most don’t report their residents’ on-time rents to one or more of the three major credit bureaus? Chances are they don’t even spill the beans on folks when they miss a month or two.
Based on a quick canvas of Equifax, TransUnion and Experian, it’s safe to say most big-time apartment owners, property management companies and landlords don’t report the good or the bad about their occupants, either.
But according to a new analysis from TransUnion, every landlord, small and large, should report both on-time and late payers.
The analysis looked at the ability to predict a 90-day past due delinquency over a 12-month period on every type of credit obligation. And it found that when rent payments were included in a consumer’s credit file, there is a 10 percent or better improvement in the ability’s to predict delinquencies.
The study underscores the importance of rent payments as an “alternative credit data asset” that can provide greater insight into a consumer’s future credit performance, said Maitri Johnson, vice president of tenant and employment screening at TransUnion.
“Encouraging more landlords and property managers to conduct rent reporting is a key next step to making this data asset more accessible in the consumer credit market,” Johnson said. “It would also help millions of consumers build their credit history and bring them into the financial mainstream.”
The obvious beneficiary of creating a “rental tradeline” would be residents looking to shift to home ownership. According to National Mortgage News, the findings lend momentum to Fannie Mae’s experiment using rental data in its underwriting process. And TransUnion itself has updated its own automated underwriting system, Resident Credit, to incorporate rent payment history in the mortgage credit evaluation process.
But reporting rent payments also benefits residents who might want to move but have no intention of buying a house, at least not in the near future. And it benefits landlords who will be able to use the collected data to make their own decisions about the likelihood of a future applicant’s desire to make on-time payments. In other words, the more rental information the multifamily business puts into the system, the better historic information everyone will have on which to base their rental decisions.
Unfortunately, the reporting of rental payments appears spotty at best. None of the three national credit repositories are willing to say how many owners and operators report on-time rental payments. They won’t even say who some of their clients might be. “We do not disclose information about our customers,” Johnson said.
But they all believe such reporting should be universal. “Ideally,” said Johnson, “all landlords should participate in a rent payment reporting program.”
The reason is pretty straight forward. “More data leads to better credit decisions,” said Chris Hobday, vice president of USIS programs at Equifax. It “encourages residents to continue paying on time and allows property managers to see delinquencies in real time as they screen applicants,” Johnson said. “The availability of date can strengthen the industry overall; it’s good for the ecosystem.”
Indeed, a 2019 survey by TransUnion found that seven out of 10 renters are more likely to make on-time payments if payments, on-time or otherwise, were reported. Moreover, when choosing between two identical apartments, two-thirds said they’d pick the one that reports their payments.
Unfortunately, according to Hobday, most property managers “choose not to report.” Perhaps it’s too costly, though the repositories are loathe to discuss pricing. Or perhaps, as Hobday said, “it’s just too hard.”
To make it easier, the three credit repositories all work with third-party processors—the likes of RentReporters, Rent Track, Rent Dynamics and Datalinx—to help facilitate rental payment reporting. Equifax, for example, has a direct-to-consumer partnership with Esusu, Zingo and Mobility Capital Finance, or MoCaFi, that allow residents to opt-in to include their payments as part of their respective credit reports.
Esusu, for example, partners with public and private sector developers to help them reduce turnover and missed payments. In the process, it also helps residents build their all-important credit scores, those snapshots in time which show how well a consumer uses credit.ai. Three Equifax partners give participating residents a free weekly or monthly credit score from VantageScore, the consumer credit-scoring model created through a joint venture of the three bureaus. And therein lies the marketing angle.
Rents payments are likely the largest monthly checks residents write, something on the order of 30 percent of their disposable income, Hobday said. And research has shown that if rent payments are included in someone’s credit files, not only they be more likely to pay on time, their credit scores would rise, sometimes substantially.
All resident types, from low-income folk in subsidized housing to market-rate occupants who move about freely and often, can be aided by leveraging rental payment data. Better yet, they are “open to it,” says Equifax’s Hobday, who mentioned a Credit Builders Alliance survey that found that 97 percent would look favorably to rental payment reporting as a way to build their credit.
At this point, the landlords among you are probably asking, “Why should you be helping your (residents) build credit? Wouldn’t that just help them move out and move on, possibly to a bigger, better apartment, or perhaps to a home of their own?” Those are good questions and only you can answer them.
But consider this. Not everyone yearns to own, and not every owner wants to remain so. According to a study by LendingTree of 1,500 renters, one in four never expect to buy a house, and 28 percent expect to return to renting sometime this decade. Furthermore, 16 percent won’t even start looking at houses for another five years or so.
As for the rest, yes, you may be helping them move out, perhaps sooner rather than later, by reporting their rental histories. But they probably are going to leave anyway. It’s just a matter of time. So why not be known as the landlord who helps people continue up the ladder to home ownership?
Imagine the marketing opportunity: “Live here and we will help you better your financial life and eventually move out of here into a home of your own.” And imagine just doing good by your residents because you can help them improve their entire financial picture.
According to Experian, for example, car buyers with the highest credit scores pay an average of 3.7 percent for their financing, while those with the lowest scores pay as much as 14 percent. If a low-score resident could lower that latter rate because you reported their on-time payments, they’d have more cash at the end of the month to pay rent, on time every time.