For years, renters who got behind on their housing payments could do so without worrying about the impact that a late payment would have on their credit rating.
Next year that’s going to change.
One of the big three credit bureaus, Experian, recently began collecting data about consumer rental payments and including that data in its credit reports.
For 2011, Experian is only reporting positive rental payment information about consumers. But starting in 2012, Experian will also keep tabs on and report negative information too, such as late rent payments.
“Given that one-third of the U.S. population rents, we felt it was imperative to reflect the true creditworthiness of those individuals who responsibly pay their rent,” Brannan Johnston, vice president and managing director, Experian RentBureau, said in a statement.
RentBureau is the largest and most widely used credit bureau for the multifamily industry. A national network of 45 property companies – including large apartment owners and managers – collect data about rental payments and, in turn, automatically report that payment history to RentBureau every 24 hours.
Experian acquired RentBureau in 2010.
Although Experian has become the first credit bureau to make rental payment info a part of its data, my guess is it won’t be the last.
At the very least, other credit bureaus and credit-scoring companies are sure to at least examine whether the inclusion of rental payment history could improve their credit-scoring models.
Calls seeking comment from Equifax and TransUnion weren’t immediately returned. Meanwhile, a spokesperson for FICO — creator of the widely-used FICO credit score — has been quoted in the Baltimore Sun as saying that the issue of including rental payments in FICO’s data has to be examined to see if such data is predictive of credit risk.
The Upside to Rental Information in Credit Reports
Although some consumers may fret over Experian including rental payment information in its files, those who pay their rent on time shouldn’t be alarmed.
Some industry experts say the inclusion of rental payment data in credit files is actually an enormously positive development for consumers — because it will help banks and other lenders see which consumers are actually quite credit-worthy, even if those individuals don’t yet have traditional forms of credit, like credit cards or mortgages.
“We believe that this is a real breakthrough,” says Barrett Burns, CEO of VantageScore Solutions. “It’s especially great for first-time homebuyer applicants and those trying to establish credit because rent is most likely their biggest obligation.”
The VantageScore is a credit score growing in popularity which ranks consumers with a letter grade of A to F, and also on a scale of 501 to 990 points.
“Our belief was that rent payments were very predictive, so we included that in our (credit-scoring) model from the very beginning,” Burns said. However, “the volume of data was insignificant,” he added, because so it was tough to get landlords to supply data to the credit bureaus.
Landlords often balked at supplying rental information to the big three credit bureaus for several reasons. First, many landlords didn’t like adhering to the rigid data-formatting process required to upload payment data to the credit bureaus. Additionally, landlords are required to update information monthly, to ensure reporting consistently. And landlords must also be willing to be audited in order to furnish data to the bureaus.
So in the past, the only type of rental payment data that the credit bureaus received was the really negative rental behavior – like evictions or collections. For those people paying rent on time, having a good payment track record previously did absolutely nothing for their credit since such payments mostly hadn’t been tracked and recorded. (Some companies tried to capture this so-called “non-traditional” data, but without much widespread success).
Now landlords, apartment owners and property managers have an enormous incentive to supply all types of payment history. Why? Those landlords will be able to essentially tap into RentBureau’s database and see which rental applicants are good credit risks – and which aren’t. The upshot for landlords, therefore, is that they can reduce their risk of approving tenants who might skip out on the rent, write bad checks, damage property, or ultimately get evicted.
For consumers, the addition of this new rental data could help tens of millions of consumers – from recent college graduates and immigrants to women and widows — build their credit ratings and credit scores. Currently, there are approximately 50 million such people in the U.S. who have either no credit files or “thin” credit files.
According to the National Multi-Housing Council, there are 96 million renters in the U.S. who aren’t getting the credit they deserve because their rental payment data hasn’t been accounted for. RentBureau tracks the payment histories of about 8 million renters.
“My guess,” says Burns, “is that those 8 million consumers are only the beginning.”
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