The Benefits of Helping Renters Build Credit
Reporting positive rent payments to credit bureaus can be a powerful tool for boosting resident satisfaction, collections and retention rates.
Today, renters in the U.S. occupy almost 44 million housing units, according to statista.com. And the roof over their head heavily depends on how good their credit score is.
One of the fastest ways for them to build that credit is to have their positive rent payments reported to the three major credit bureaus—Equifax, Experian and TransUnion—and property management companies can play a key role in building their renters’ credit profiles and scores. For example, operators using resident portals such as RentCafe can easily report positive rent payments through the platform. Resident-Link—the first company that enabled residents to build and establish their credit—is incorporated within RentCafe, which uses Experian RentBureau to include positive rental payment data in Experian credit reports.
One of the largest property management firms that chose to participate in a rent payment reporting program is Greystar. In fact, Greystar was instrumental in the development of Resident-Link and pioneered the product.
“We were first to market with rent reporting and complete identity theft protection. It is important for us to look for ways to improve the resident experience, and getting credit for paying your largest monthly expense on-time is a perfect fit,” Greystar Senior Director Advantage Solutions Greg Ebbert told Multi-Housing News.
In February, IDIQ—a company providing credit monitoring services and identity theft protection—acquired Resident-Link after taking note of the growing number of residents understanding the benefits of having their positive rent payments reported.
“Residents view this amenity as something that directly benefits them personally,” said Sherrie Hubler, vice president of Resident-Link provided by IDIQ. “Unlike other amenities some residents might not use, credit is something each of us needs today.”
And when renters feel supported by their landlords and property managers, they are more likely to be satisfied with the resident experience which, in exchange, boosts collections and retention rates, according to Jonathan Needell, president & CIO of Kairos Investment Management Co.
In March, investment and asset management company Kairos launched a new program for its affordable housing communities to help residents improve their credit scores, led by Esusu. Renters whose payments are reported are highly motivated to continue making on-time payments, which results in higher property returns and stable occupancy levels.
“By enrolling into this program, residents can strengthen or grow their credit profiles, which can open the door for opportunities such as qualifying for employment, auto loans and credit cards,” Needell said.
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Why help residents build credit?
Some property managers might hesitate to report positive rent payments because they think that this might encourage residents to move out, or even shift to homeownership. But for many renters, rent reporting can help them establish credit for the first time or restore credit that was affected by health problems or unemployment.
Wasatch Premier Communities was also an early adopter in rental payment reporting, partnering with RentDynamics’ RentPlus since 2015. “We see it as more than a competitive advantage; it’s part of our commitment to exceptional service for our residents,” said Kitty Callaghan, vice president of marketing at Wasatch Premier Communities. “While it’s hard to draw a direct line, we have seen late rent payments decrease, while resident satisfaction and occupancy have increased significantly.”
Callaghan is responsible for leasing and marketing activities at nearly 17,000 units across 70 communities in the U.S. Currently, almost 65 percent of Wasatch’s residents are having their positive rent payments reported to credit bureaus. And this is having a huge impact on the company’s renewal rates. “Once they see the real benefits to their credit reports, they don’t want to move elsewhere,” Callaghan said.
Jonathan Rose Director of Social Impact Lori Stanlick believes that reporting positive rent payments acts as an “element of hope” because residents don’t always realize that simply paying on time can have a positive effect on their own financial well-being.
“Improving credit positions the resident to receive lower interest loans, lower APR lines of credit and better employment,’ Stanlick said, “These attainments help the individual become more stable in their affordable housing setting and improve quality of life for individuals and their families.”
For Kairos, reporting positive rent payments is a way to give back to renters and make financial literacy accessible. “We see this as an investment in our community base and as a strong part of our commitment to longstanding affordability. Tenants that are educated about credit are better tenants,” Needell noticed.
At Rose Community Management, rent reporting is seen as an avenue to improve residents’ financial inclusion, providing them more opportunity to participate at all levels of the economy, according to President Kevin McKee.
How does reporting rent payments benefit investors and managers?
Property managers can look at reporting rent payments as an extra perk that complements the physical amenity package. It can help them attract new residents, further their ESG goals and, ultimately, exceed residents’ needs and expectations.
“(Reporting rent payments) can lead to renters consistently making on-time payments, stable occupancy levels and the property’s ability to maximize returns,” Needell said.
Hubler also believes that reporting rent payments to major credit bureaus can directly impact investors and managers’ client base by providing better qualified prospects, more timely rent payments, reduced turnover and ancillary revenue.
This service can even open a new window for marketing apartments. Renters who need to create or build up credit are more likely to rent a unit in a community that offers them the possibility to enroll into a program that strengthens their credit profiles. And this is something that the marketing department could exploit.
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Recently, Jonathan Rose Cos. reported that its partnership with Esusu led to 95 percent of residents improving their credit scores. The two entities launched their collaboration two years ago with residents from four properties in Harlem, N.Y., and Stamford, Conn.
Besides having their rental data reported to the three major credit bureaus, residents were also able to access rent relief fund throughout the pandemic, supporting them in staying on top of monthly rental payments. Now, the property management company intends to expand this program to its full portfolio of 80 properties and 12,500+ units across 11 states.
BH Management Services also partnered with the same service provider at the end of 2021 to provide free rent reporting services to its residents. By May, 44 BH-managed properties were included in the partnership, and the latest data shows that 67 percent of the 14,700 enrolled residents saw an improvement in credit scores, with 498 residents establishing credit scores for the first time.
Freddie Mac also recently announced that it will provide closing cost credits on multifamily loans for owners of rental properties who agree to report positive rental payments. Nowadays, fewer than 10 percent of renters see their on-time rental payment history reflected in their credit scores.
“Rent payments are often the single largest monthly line item in a family’s budget, but paying your rent on time does not show up in a credit report like a mortgage payment,” said Michael DeVito, CEO of Freddie Mac, in a prepared statement. “That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car or even education. While there remains more to do, this is a meaningful step in addressing this age-old problem.”
Ebbert admits that reporting rental payments to credit bureaus is still relatively new to multifamily and some property managers might hesitate due to security and data protection concerns.
“This is a personal information-heavy transaction and must be taken very seriously with data security, user acknowledgement, and is not as easy as ‘just send us your rent roll’ as some providers would have you believe,” Ebbert said.
However, despite the difficulties, it might be worth investing in.
“This service has been invaluable to our family. With this service, we have been able to raise our credit each month as we make our payments on time,” a Wasatch Premier Communities resident said in a review. “We thought it would take years for our credit to improve, but we are in a much better place now than we were just a year ago.”