Applicant Credit Risk Improving Alongside Increases in Rental Prices

A recent report by TransUnion has found that rental applicant credit risks improved by 0.8 percent between Q2 2013 and Q2 2014 despite increases in rent prices.

Chicago—A recent report by TransUnion has found that rental applicant credit risks improved by 0.8 percent between Q2 2013 and Q2 2014 despite increases in rent prices. The report, TransUnion Rental Screening Solutions industry report, found that credit risks for applicant seeking less expensive housings decreased across all major property types, but especially in the less expensive Type C and D properties.

The report, which classified Type A properties as newer and institutional, Type B as older and institutional, Type C as older and located in a less desirable area, and Type D as older, in a less desirable area and in need of renovations and/or repairs, saw the latter two types improve in applicant credit risk by 1.2 percent and 1.4 percent, respectively.

“This is great news for both renters and property managers,” says Michael Doherty, senior vice president of TransUnion’s rental screening solutions group. “We continue to see improvement in the credit risk of renters, which gives them more opportunities to receive better rental terms. This is a continuation of a trend we have now observed for the last few years. With the advent of rental reporting to TransUnion, improvements in credit risk will also help renters build their credit by making on-time, monthly rental payments.”

The report also found that average rent prices increased 3.1 percent year-over-year from $984 in Q2 2013 to $1,015 in Q2 2014, and that all rental types experienced an increase in rental prices. Type D properties showed the largest increase in rents with an increase from $609 for the same time period in 2013 to $656 (7.7 percent change) in 2014, while Type A properties tallied a 4.2 percent change and Type B and C had changes of 3.3 and 1.4 percent, respectively.

Additionally, the report observed a decrease in the national average eviction amount, which typically includes costs associated with lost rent, property repairs, operational and legally related fees, has steadily dropped over the past three years from $1,980 in Q2 2011 to $1,917 in Q2 of this year. The figure is another indication of a flourishing national rental market.

“Property managers generally incur fewer costs when their portfolio of renters is of a better quality,” Doherty says.

The upswing in the health of the rental market combined with applicants of better credit quality is good for property managers, but for renters as well.

With the introduction of TransUnion’s newly expanded ResidentCredit service, property managers are able to report payment performance of renters, which, in-turn can induce changes on renters’ credit scores in as little as a month. For on-time renters, this can potentially translate into a higher credit score.

TransUnion released an analysis in June that found that about eight in 10 subprime consumers –79.1 percent of which had a VantageScore 2.0 credit score lower than 641 on a 501-990 scale – would see an increase in their score after only one month into a new apartment lease if the payment was included on their reports. Additionally, almost 41 percent of subprime consumers could see their VantageScore go up by 10 points after one month.

“Many consumers are still recovering from the economic malaise brought on by the past recession, but those consumers who wish to rent can now see meaningful improvements in their credit score after making their first on-time payment,” Doherty says. “This can help renters who want to purchase homes or cars receive better loan terms, potentially saving them thousands of dollars.”