Renters in the U.S. can face significant barriers to buying homes and building wealth. That’s because they are seven times more likely than homeowners to have no credit score, due to lack of credit history. These barriers mean renters can have a hard time gaining an economic foothold by securing common resources ranging from insurance, employment choices and utilities, to cars, education, and even rental housing itself. And all these resources often cost more when a person has low or no credit—making it even more difficult to get ahead. These disparities pose the greatest harm to people of color and those with the lowest incomes.
Credit scores and histories are built on the documented consistency with which a person pays off a debt. While rent constitutes the largest and most long-term debt that many renters hold, those payments have typically not been documented and referred to credit reporting agencies to inform renter credit reports. As a result, even those renters who have demonstrated the ability to pay their debts don’t get recognition on the single metric that holds the most power for economic mobility: the credit score.
Rent reporting – the monthly reporting of tenant rent payments to at least one of the major consumer credit bureaus for inclusion on a traditional consumer credit report – is a strategy that can help renters build the credit they need for stable financial growth.
Over the past five years, the federal government, state and local governments, and the private sector have created requirements, incentives, and infrastructure to spur the increased use of rent reporting.
Federal initiatives include:
- Fannie Mae’s Multifamily Positive Rent Payment Reporting pilot program, which covers the cost to provide eligible multifamily property owners with the infrastructure to share timely rent payment data through a network of approved vendors to the three major credit bureaus to inform the renter's credit profile. Freddie Mac administers a similar program.
- Fannie Mae’s Desktop Underwriter® gives single-family lenders who have obtained permission from mortgage applicants the ability to automatically label recurring rent payments in the applicant’s bank statement data to perform a more comprehensive credit assessment. For such applicants, this may help build the bridge from rentership to homeownership where home equity may serve as an engine for building intergenerational wealth.
Colorado, Delaware, and the District of Columbia have made similar moves, creating pilot programs to study rent reporting to build credit. California has gone a step further, requiring private landlords with 15 or more subsidized housing units to offer their residents the opportunity to take advantage of rent reporting.
This movement has also taken hold across the private sector with several intermediaries, including software platforms used for rental housing administration, offering avenues to send rental history data to the credit bureaus. In addition, the three major credit bureaus themselves (Experian, TransUnion, and Equifax) offer renters paid subscription services that will integrate their rent payments into their credit profile with the respective agency.
As rent reporting starts to proliferate and early lessons are gathered, two critical barriers must be addressed to encourage program uptake: costs and administrative burdens. Low costs and minimal administrative burdens would incentivize more property owners to adopt rent reporting programs. Fortunately, property management software platforms that offer rent reporting capacity are becoming cheaper and easier to use, making them more accessible to a wider range of property owners. Further incentives and dissemination of information to gain active participation will encourage the further spread of these programs.
As the benefits of rent reporting become clearer, federal, state, and local governments are all well positioned to promote the advantages of rent reporting and help make the practice more pervasive across the rental housing industry. Government agencies can tie incentives or requirements to their construction funds, tax credits, and housing subsidies to encourage participation among owners and operators. They can also share information and offer technical assistance to help property owners and residents grasp the benefits of rent reporting and learn how they can participate. In turn, property owners can independently educate their tenants and help them navigate rent reporting platforms outside of government programs or incentives.
Rent reporting is a proven approach that benefits renters and property owners alike. For renters, it provides an opportunity to build credit without accruing additional debt, and it can improve access to car loans, credit cards, and business loans, and bolster participation in individual development accounts and financial counseling. Housing providers benefit from more consistent and timely rent payments. And all these benefits extend to renters’ families and the communities in which they live.
