When shopping for a new apartment, one of the most important amenities to look for — even more than a fitness center or visitor parking — are landlords who report their tenants' rent payments to credit reporting agencies. I believe it will result in a better living experience and a brighter future.
Renting is expensive. From one year to the next, the cost keeps going up. In fact, for many renters, their housing payments are their biggest single expense each month. Yet, their commitment to paying that major financial obligation is most likely not helping to improve their credit.
A good credit score can open the door to a better standard of living. A positive credit history and high score can result in easier approval for an apartment, lower interest rates on loans and better chances for loan approvals for homes and other purchases. High credit scorers earn better terms on credit cards, lower mortgage rates and less expensive premiums on auto and homeowners insurance. A good credit score can get people lower down payments or collateral due when they want to make investments, and it can even improve their chances of landing a job.
While mortgage and credit card payments make it onto a credit report, rent usually does not. How is it possible that a timely $150 Visa payment affects a credit score but paying hundreds — if not thousands — of dollars per month for rent has no bearing on whether you are financially responsible? Not only do renters stand to benefit from rent payment reporting and the greater financial inclusion that comes with it, but property managers would also do well to get on board.
Rent Reporting Is a Win-Win
I believe property managers should want their residents to receive recognition for their rent payments. Without enough data on an applicant's payment history, it can be nearly impossible to distinguish risky renters from qualified ones, which means property managers may be overlooking good renters (i.e., your potential neighbors). The more that property managers report rent payments to credit reporting agencies, the more information everyone has to convert potential leads into actual residents.
Our research also shows that younger renters are increasingly interested in building their credit histories through rent reporting to overcome the hurdles to homeownership. We found that, when choosing between two identical apartments, most renters would prefer the one with payment reporting in place. When management companies reported rent payments, we also found that most renters were more likely to make those payments on time, decreasing the chance of renters going into delinquency and improving the management company's cash flow.
It Creates Financial Inclusion and Opportunity
While Americans overall may be enjoying the highest average FICO credit scores ever, millennials and Generation Z are lagging behind on that trend. Building credit takes time and younger consumers have thinner files. A lower number of credit accounts, credit cards and nonmortgage debts (particularly record student loan debt) are holding them back from growing their score. By receiving credit for timely rent payments, these consumers and others with the least access to favorable terms for financial goods and services (a total population representing half of renters) stand to gain significant credit growth and purchasing power.
Better credit through rent payment reporting can bring millions of people into the financial mainstream. At TransUnion, our research shows that rent payments included in an individual's credit file increased their score by an average of nearly 60 points and many saw their scores improve after the first month of reporting. For those we call "credit invisible" — immigrants, students or others just starting their credit journeys — the addition of rent reporting could catapult them from being credit invisible to a 630 score.
Everyone — Even Policymakers — Should Get Involved
When it comes to rent reporting, I believe everyone benefits and we all can take action to empower renters with greater financial freedom. If you rent, find out if your landlord or property manager is reporting those payments to credit reporting agencies. If they're not, start looking into steps you can take to change that, perhaps including hiring a third-party data furnisher to report on your behalf.
If you are a property manager who is not reporting, consider how much it could improve the economic lives of your tenants by rewarding their timely monthly rent payments with a credit boost. Property managers can report rent payments to credit reporting agencies like TransUnion at no cost. However, if resources, technology or other factors are barriers to entry, an entire industry of third-party data aggregators (e.g., Rent Dynamics, Self Inc., Hello Till) can provide this rent reporting capability to renters for a fee.
Even public figures can champion the cause, earning broad public support and offering the emerging generation of renters and other underrepresented people greater financial opportunities. Lawmakers can drive legislation that encourages property managers to report their rent or allows individuals to take on the task themselves. The more of us who support rent reporting, the more we support the financial empowerment of people who need it.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
