Consumers build their credit by paying off items such as vehicles, mortgages, credit cards, and other monthly bills. It only makes sense that paying rent would factor into that equation as well.
Unfortunately, that had seldom been the case in the apartment world until recent years.
Conventional wisdom would suggest that someone’s largest monthly expense would help them to build credit, particularly for those who are responsible and pay on time. Instead, renters often fall into the unenviable cycle of being unable to qualify for homeownership when they begin renting. They then remain unable to bolster their credit throughout their lease.
The paradigm is shifting, however, as many multifamily properties are beginning to offer rent reporting as something of a financial amenity. Recent legislature in California now requires most rental housing operators to do so. On a nationwide scale, operators should be encouraged to offer rent reporting, because it can benefit them, as well—particularly if they properly structure their programs for optimal success.
Changing Landscape
To be clear, conversations about rent reporting within multifamily got started approximately a decade ago, but only recently has the concept begun to make significant headway. California began brainstorming rent reporting legislation about five years ago, and, after much discussion, the new law, AB 2747, went into effect April 1.
The statute requires rental housing operators to give residents the option to have on-time payments reported to at least one credit bureau and applies to all communities with 16 or more homes. It also applies to communities with 15 or fewer homes if the building is corporately owned and the owner has more than one property. Similar legislation is beginning to sprout up in different areas of the nation, including in Maryland’s Prince George’s County.
Benefits for Operators
When rental housing operators offer rent credit reporting, they demonstrate they are meeting renters where they’re at. This shows that the relationship is more than transactional and subsequently bolsters the resident experience. Additionally, rent reporting almost certainly increases the frequency of on-time payments as more residents will be incentivized not to be late, which leads to improved net operating income and greater financial stability.
Operators that offer rent reporting also will be regarded more favorably in the capital market. When meeting with lenders, they can illustrate that they have programs in place that help residents as opposed to being the “big bad landlord.”
How much of a difference can rent reporting make to the average resident? Entrata data shows that renters’ credit scores rise approximately 48 points per year with credit reporting in place, which is extremely significant considering renters generally have lower average credit scores than homeowners.
Properties that offer rent reporting not only provide potentially immense benefits for current renters, they also become more attractive to prospects searching for a home. A characteristic of Gen Z renters, for instance, is that they want to feel like they’re part of something bigger. The ability to bolster their credit makes many Gen Zers feel better about renting, because they perceive their payments as a stepping stone rather than something that just disappears each month.
Revolutionizing Student Housing
Most student renters are credit invisible, meaning not enough data has been collected on them to create a credit profile. That designation often persists throughout one’s college years, and they enter adult life at ground zero credit-wise.
Now rent reporting also is entering the student housing space, which can have an incredible impact. Many student renters who are unscorable when they arrive at school in August can build their scores to the 700 to 750 range by the end of the school year. This is one of the only ways to build credit while in school and gives younger individuals increased consumer options when ordinarily they would have had none.
Student communities that offer rent reporting create the added benefit of building responsible financial habits. When people are incentivized, they’ll often be more responsible, particularly when responsible financial behavior might create an earlier path to vehicle ownership or even homeownership. Operators essentially can frame themselves as a partner with students in their eventual step to homeownership.
Best Practices for Implementing a Rent Reporting Program
While operators should be encouraged to adopt tools to assist with rent credit reporting, the first objective is to make certain they’re not adding any burden to their on-site teams. An effective platform shouldn’t create an abundance of extra work for associates or be a constant source of stress. Simply put, an effective solution should offer the service to residents and do the heavy lifting for operators.
Credit seems like a simple concept on the surface but is incredibly nuanced, which underscores the need to team with a true partner rather than a distant third-party service. When vetting a potential partner, operators should inquire how the provider will align with the Fair Credit Reporting Act. Will the service handle any questions and disputes? Does the solution offer robust data security, and will the provider take liability for the data that they provide? Operators should also be aware of which credit bureaus the provider has the strongest relationships with.
Additionally, any effective partner should offer resident-facing support, mostly for the sake of education. Residents will have many questions about the nuances of rent reporting, and the more clearly those inquiries can be answered, the better. Lastly, an effective rent reporting platform should have the ability to seamlessly integrate into a community’s current leasing cycle and ultimately feel like a part of what teams are already doing. For instance, rent reporting information can be added to the application process at the outset.
Moving Forward
Rent reporting is a win for all product types—Class A, B, C, affordable, conventional, student, it’s all the same. It helps residents build credit and fosters more responsible renters for operators.
While the concept is only required in select locales currently, operators would be wise to get ahead of the trend now. Within a few years, it might be required everywhere, and it will become an expectation among renters.
If the multifamily industry can implement effective rent reporting programs on its own, the chances increase that the sector can govern itself and not have outside interference from regulatory bodies. What’s certain is rent reporting isn’t a passing trend. It’s here to stay, and operators that offer it to residents are a step ahead of the curve.
