Experian RentBureau began including rental payments in its credit reporting in 2010, but not every type of renter was included from the get-go.
It wasn't until late 2013 that subsidized housing renters were able to take part in the program. Yet, according to its new study, these renters could be the ones to benefit the most.
The study drew from a population of 20,000 leases that included subsidized payments, from 1994 to 2013. And it finds that after adding positive rent payments to the credit database, 75 percent of subsidized renters saw their credit scores increase, the majority of which was 11 points or more. Another 21 percent saw no score change, and 3 percent actually saw a score decrease of more than 11 points.
“I think this represents a huge opportunity for the owners and managers of affordable housing to help their residents and offer another amenity to them,” says Brannan Johnston, vice president and managing director of Experian Rentbureau.
Subsidized housing residents could gain tangible benefits from having positive rent payments reported to credit bureaus, according to the study.
For example, after positive rental payments were added to the credit database in the study, residents migrated into higher (less risky) risk segments, with the subprime category decreasing 19 percent, nonprime increasing 92 percent, and prime increasing 24 percent.
When modeled with credit card interest rates, the study shows that individuals who migrated from subprime to nonprime could receive interest rates nearly 4 percentage points lower, and those who migrated from nonprime to prime could receive interest rates almost 7 percentage points lower.
Even more, the 11 percent of the study population that was previously unscoreable with no credit history became scoreable. A whopping 97 percent in this category fell into either the nonprime or prime risk segments, meaning individuals who previously had no access to credit cards or mortgages could now gain access to these products at some of the best rates.
The study also proved that more credit-file diversity could lead to lower credit card interest rates. Even in the same risk segment, those with thicker credit files received model credit card interest rates of roughly one to two percentage points lower, and the 3 percent that reported a credit score decrease of 11 points or more still received the benefit of having thicker credit files.
For low-income families, the money saved through lower credit card interest rates would be a short-term boon, while these residents could eventually gain access to mortgages, small business loans, or education loans at better terms, giving them access to pathways out of poverty.
Credit Builders Alliance
Experian RentBureau worked with Credit Builders Alliance (CBA), a nonprofit organization, to launch a Power of Rent Reporting initiative in mid-2012 that focused on preparing eight subsidized housing property managers and owners to report valid and consistent data to Experian.
One of the main problems was making sure these participants had the right software and that the software was working properly. Experian wanted to ensure that only the nonsubsidized portion of tenants’ rent was being reported so that the data only reflected tenants’ own financial obligations.
“We kind of had to ask Experian to go outside of its usual standard operating procedures and work individually with each of our pilot groups to make furnishing the data possible,” says Sarah Chenven, director of programs and strategic initiatives at CBA.
Though 97 percent of subsidized housing renters thought reporting rent payment was a great way to build their credit, questions have been raised about unintended consequences. For example, some wonder if opening up more credit opportunities to subsidized housing renters will only encourage them to take on more expenses they can’t afford.
Though it is a concern, CBA is working to educate these subsidized housing residents so that doesn’t happen. In fact, an unexpected benefit is that more of these renters have been active in other financial programming.
“We’ve seen a much larger uptick in number of folks enrolled and successfully completing their financial education programs and financial asset building programs,” says Chenven.
TransUnion's Resident Credit
TransUnion, another major credit bureau, also recently launched its own rental payment data service, ResidentCredit, in June 2014 after finding that 80 percent of subprime consumers saw a credit score increase in just one month, with 41 percent of subprime consumers seeing an increase of 10 points or more in that month.
TransUnion ResidentCredit is accepting data from subsidized housing renters, but strongly urges that the reported information only include the nonsubsidized portion of the payment.
The rental payment data programs at both TransUnion and Experian only include a few million renters, while there are roughly 43 million rental households in the US, according to the National Multifamily Housing Council (NMHC).
“We’re in discussions right now with some of the housing authorities and they seem generally pretty positive on it, but they’re somewhat slow moving,” says Michael Doherty, senior vice president of TransUnion’s rental screening services group.
Chenven has also said interest and feedback from housing authorities has been tremendous and has partly spurred the continued motivation to get more renters, including subsidized housing renters, reported to credit bureaus.
Johnston agrees: “If there was more of a push from a policy perspective, it would help in terms of getting more residents reported.”