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Rent payment history can help provide greater predictability regarding consumer credit performance, according to new analysis from TransUnion, while also helping financial institutions that are looking for new initiatives to promote financial inclusion.

The TransUnion study examined the ability to predict a past due delinquency of more than 90 days over the course of 12 months on any type of credit obligation, such as auto or personal loans and credit cards. It found that when rental tradeline data was included in the credit file, there was a 10+% improvement in the model’s ability to predict delinquencies within a one-year period compared with when rental payments were not included.

“Rent payments can provide valuable insight into a consumer’s future credit behaviors. This alternative credit data, however, has traditionally not been leveraged by lenders despite the predictive power of such information,” 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. It would also help millions of consumers build their credit history and bring them into the financial mainstream.”

TransUnion also cited that rent payments have a “strong predictive power” into a consumer’s likelihood of making payments on other credit obligations because of the priority around the expense. A recent survey commissioned by the firm showed that rent was selected as the most important bill to pay out of 15 different expenses by 59% of consumers due to the severity of the consequence of a missed payment, the value of the expense, and the normalcy of the expense.

Steve Holden, vice president of single-family analytics for Fannie Mae, said the findings support the government-sponsored enterprise’s (GSE) belief that if someone pays rent consistently, they also would pay a mortgage on a consistent basis.

“That’s why we recently updated our automated underwriting system to incorporate consumers’ rent payment history in the mortgage credit evaluation process, an important step forward in responsibly expanding mortgage credit access for thousands of renters,” Holden said. “Wider consideration of rent payment history across the broader consumer reporting ecosystem could enable more financial institutions to similarly factor this type of credit data into their underwriting models. This is a win-win that demonstrates the potential of using technology and data to responsibly remove long-standing barriers to credit access, while helping to ensure consumers receive a more fair and inclusive credit eligibility assessment.”

Freddie Mac also announced in early November that it is helping renters build credit with a new initiative that encourages multifamily operators to report on-time rental payments to the three major credit reporting bureaus.