Reporting rent to the major credit bureaus is not only great for renters–but can help property management as well by bringing in reliable renters.
Credit reports are used to gauge how creditworthy, responsible, and diligent people are. But these reports have been missing one of many Americans’ most significant financial commitments – paying their rent.
A resident’s track record of paying rent on time strongly indicates fiscal competence and accountability. And yet, rental histories generally don’t show up on credit reports.
Many believe that rent payments can’t be reported to credit bureaus since rent isn’t technically a loan. But that’s incorrect.
The credit bureaus are open to rent reporting and will include a lease’s payment history in credit files.
The main problem has been a general lack of awareness and insufficient industry solutions.
What is Rent Reporting and How Does it Work?
Many renters would love to have DIY “credit my rent” opportunities. Unfortunately, that’s not how the credit bureaus work.
Residents aren’t able to self-report their rental payments. But property managers can easily take care of this by partnering with a third-party service.
The third-party service can automatically record and report rent payments via an integration with the property’s ledgering system. This establishes a credit bureau history of making on-time, late, or delinquent rental payments.
Why Rent Reporting is a Game-Changer for Renters
Rent reporting services reward renters for paying on time and demonstrating good financial behavior, helping them build more robust credit profiles and prove their creditworthiness.
Renters typically haven’t been able to do this. And that’s one reason why renters often have a weaker financial standing compared to homeowners.
Allowing renters to credit rent payments with the bureaus helps diligent residents strengthen their credit files and gives residents with poor histories a way to improve them.
Credit Building Opportunity
Credit bureaus place quite a bit of weight on rental payments, and these histories can dramatically impact credit scores.
TransUnion data shows the average renter’s credit score increases by almost 60 points when rent payments are added to their file.
Rental payments are significant long-term expenses. Renters who consistently meet their commitments demonstrate how responsible and credit-worthy they are.
Rent reporting services let residents translate their excellent behavior into better credit scores. Conscientious and responsible renters won’t want to miss that opportunity.
Financial Inclusion for Unscorable and Subprime Consumers
It can be difficult for people to build or improve their credit – even if they’re responsible consumers.
People with non-existent credit histories or thin files are considered unscorable. Unscorable or subprime consumers often can’t access financial products with favorable terms and rates. They’re left vulnerable to predatory financing and can slip into worse economic conditions.
These people are overrepresented in the renter demographic. Unscorable and subprime consumers make up almost half of all renters. Part of the problem is that rent payments aren’t reported to credit unions, while mortgage payments do.
Many renters would appreciate having rental histories included in their credit files. Rent reporting is proven effective at improving unscorable and subprime credit histories.
In a pilot program run by the Credit Building Alliance (CBA), 100% of unscorable residents became scorable after participating in rent reporting. And 90% of residents with subprime credit scores had an average increase of around 32 points.
It doesn’t make sense for someone who consistently pays their rent and bills on time to have a non-existent credit score, thin file, or be denied access to reasonable financing. Helping these residents improve their credit scores puts them on the path to better financial security and stability.
Why Rent Reporting is a Game-Changer for Property Managers
Rent reporting is a value-added feature that’s good for renters and property managers. These services mean renters benefit from paying on time and will experience negative personal consequences if they don’t.
Their rental payment history can positively or negatively impact their financial profile and ability to secure financing.
And that brings ongoing benefits for property managers.
Property managers reporting rent to credit bureaus can expect to attract higher-quality renters more easily. Rent reporting services are effective at luring responsible renters away from other potential places. These services also cater to the financial interests of younger renters who are building their credit scores.
Plus, incentivizing renters to pay on time naturally results in lower delinquencies. People are less likely to let things slip if they know that missing rent will negatively affect their credit score long-term.
Stand Out from the Competition
Rent reporting is a strong competitive differentiator. When choosing between two identical apartments, 67% of renters would choose one that offers rent reporting over one that doesn’t.
Reliable renters want to be recognized for their good behavior. And awareness is rising around the existence of rent reporting services.
In the CBA’s pilot program, 97% of participants said that paying their rent on time would be a good way for them to build their credit, and 96% said that having good credit was important to them. To be fair, residents participating in a rent reporting pilot are likely to be interested in building their credit.
Attract Better Renters
Rent reporting is an excellent way to bring in conscientious and diligent renters of all demographics. This service appeals to residents who enjoy maintaining high credit scores.
Renters with strong financial habits beeline towards property managers who make this available. In contrast, renters with shakier histories will be more likely to avoid them.
Want to bring in more responsible young renters? Offer to credit their rent to the bureaus.
These generations are eager to build their credit through rent reporting services. TransUnion’s renter study determined that rent reporting services incentivized a higher proportion of Gen Z and Millennial renters.
The study found that 73% of Gen Z renters, 69% of Millennials, 67% of Gen Xers, and 62% of Baby Boomers would prefer a rental with credit reporting services over one without.
Motivate Renters to Pay and Decrease Rental Delinquencies
Rent reporting incentivizes renters to pay on time. TransUnion found that 73% of renters would be more likely to pay their rent on time if property managers reported it to credit bureaus.
That breaks down to 79% of Gen Z renters, 76% of Millennials, 76% of Gen Xers, and 58% of Baby Boomers admitting to being more likely to pay their rent on time if property managers reported their payments.
The stats make sense. Most people don’t want their credit scores to drop. And younger renters who are still building their financial habits will be more incentivized.
Another key TransUnion finding is that 26% of renters whose payments were being reported decreased any late payments by 26 to 50%.
Rent reporting will significantly impact a renter’s credit score. Give them a self-centered reason to pay on time.
Does your portfolio incorporate ESG? Rent reporting is one way to strengthen the social-related ESG factors by supporting financial inclusion and economic mobility.
The U.S. Department of Housing and Urban Development views rent reporting as a measure that can help people with low or invisible credit profiles access better housing and employment opportunities and put them on a path toward improved self-sufficiency.
The Urban Institute’s Housing Finance Policy Center outlined clear socioeconomic gaps between renters and homeowners – which is partly linked to renters having poorer credit profiles.
Housing is a major expenditure. It’s often the most expensive one for both renters and homeowners. But renters largely haven’t been granted the privilege of having their payment history reflected in their credit files.
You can change that.
Qira is partnering with a credit reporting company in the near future to integrate rent reporting into our platform. As a property management partner, you can further enhance the services you offer residents by allowing them to strengthen their financial standing as they pay rent.
This is yet another way that Qira’s platform helps property management partners attract high-end, fiscally conscientious renters.
To be the first to hear more about to launch of this partnership, request a demo today!