Resident Credit Scores Improve: TransUnion
- Jun 19, 2018
A recent study by TransUnion found that the average credit score using TransUnion’s ResidentScore model, which was designed specifically for apartment renters, has increased on a year-over-year basis. The percentage of renters falling in the top ResidentScore bracket of 720 or higher increased to 34 percent from 32 percent on a national basis, while almost all other tiers of credit score increased or remained constant. At the bottom end, the percentage of renters with a ResidentScore of below 540 fell from to 5 percent from 6 percent.
“Strong local economies coupled with low unemployment rates are likely driving the improvement in the average ResidentScore,” explained Mike Doherty, senior vice president in TransUnion’s rental screening business. Not only has employment continued to bolster the apartment market, but wages, especially in growth sectors such as technology and professional services, have shown signs of growth. Steady wage inflation will be a welcome sight for both residents and property owners, as landlords will be able to increase rents moderately, while renters enjoy expanded purchasing power.
The percentage of super prime renters (those renters with scores of 720 or higher) increased in each of the top 10 MSAs, with the most dramatic year-over-year increase in Atlanta, which rose to 28 percent from 24 percent in 2017. San Francisco had the highest share of super prime renters, with 46 percent of renters posting a ResidentScore of 720 or higher, up from 43 percent in 2017, followed by New York (42 percent compared to 40 percent in 2017).
Higher scores reduce the likelihood of delayed or delinquent payments, but TransUnion’s study still indicates risk for property management companies renting to residents with low ResidentScores. Roughly 41 percent of tenants who recorded a ResidentScore of 540 or below were evicted or skipped rent in the first 15 months of their lease.
As rents grow nationwide, many renters, especially those with strong credit, may consider purchasing a home. However, home prices are rising even faster than rents in many markets, which makes the appeal of renting stronger for many millennials.
New apartment stock has been coming on at the high end and property managers are thus asking for strong creditors that can afford amenitized, luxury apartments. According to TransUnion, the credit profiles continue to improve, which should alleviate some of the pressures facing leasing and property managers as they lease up their properties.