Renters & Credit Trends Part 3: Rental Payment History in Subsidized Housing
- Sep 14, 2015
Thirty-five percent of U.S. households rent, according to the Harvard Joint Center for Housing. Perhaps not surprisingly, renting an apartment versus purchasing a home is often more viable for families at the lower end of the income spectrum. For many of these renters, financial exclusion is a reality. Despite consistently meeting their financial obligations as agreed, many of these renters often operate primarily on a cash basis and are exempt from mainstream financial services due to limited or no credit history.
Indeed, an individual may not have a credit file or may have a thin credit file with limited credit history that makes it harder for lenders to gauge the individual’s ability to manage multiple financial obligations. In many cases, these individuals are dependent on high-cost, short-term credit and pay a premium for access to basic services.
For subsidized housing community operators and property managers interested in helping residents build credit history, one of the easiest ways to make an impact is with rental payment history.
In a recent study of nearly 20,000 subsidized housing leases, Experian® RentBureau® found the addition of rental payment history for previously scoreable study participants resulted in an average VantageScore® 3.0 credit score change of an increase of 29 points. In addition, 100 percent of the study participants who were previously unscoreable became scoreable, with the majority falling into the least-risky prime category.
This data is the latest to affirm that apartment companies are uniquely positioned to help all renters, including subsidized housing residents, build credit history by reporting rental payment history data. For subsidized housing operators, reporting rental payment history data is an easy-to-market amenity that can help communities differentiate themselves from the competition in a meaningful way to many prospective renters.
Rental payment history data also can help subsidized housing residents with thin credit to build “thicker” credit files. In the study, 23 percent of residents with thin credit files migrated to the thick-file category with the addition of rental payment history data. Migration from thin-file to thick-file status potentially can signal to lenders that individuals are able to manage multiple credit obligations effectively, thereby increasing their access to available credit.
While reporting positive rental payment history data to the credit file helps residents build credit history, it also benefits property managers and apartment owners and operators. When positive rental payment history data appears on credit reports, rent reporting operates as an incentive for residents to make the on-time rental payments that can contribute to building their credit history. As a result, residents are less apt to get too far behind on their rent payments, resulting in late fees, bad debt or having a resident skip on his or her lease with a balance due.
Emily Christiansen is director at Costa Mesa, Calif.–based Experian RentBureau.
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