Creating Better Renters ... And Buyers

Creating Better Renters ... And Buyers

Reporting rent payments to credit agencies is a good way to build future mortgage borrowers.

BY LEW SICHELMAN | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL

The vast majority of Mom and Pop landlords are the backbone of the rental market. Yet most don’t report their tenants’ on-time rents to one or more of the three major credit bureaus. Chances are they don’t even spill the beans on folks when they miss a month or two.

Based on a quick canvas of Equifax, TransUnion and Experian, it’s safe to say most big-time apartment owners, property management companies and landlords don’t report the good or the bad about their occupants, either.

But it says here that all of them should, for a couple or reasons. First, recall, if you will, the old computer science axiom, “garbage in, garbage out.” Or, in this case, the more rental information the business puts into the system, the better historic information everyone will have on which to base their rental decisions and, later perhaps, a decision on whether a prospect is mortgage-worthy.

And two, reporting on-time rent payments could be a good marketing slant because it could help occupants improve their credit scores. Imagine a tag line such as this: “Live here and we will help you better your financial life and eventually move out of here into a home of your own.”

More on marketing in a moment. First, let’s discuss reporting in general.

WHICH LANDLORDS ARE IN?

None of the three national credit repositories are willing to say how many owners and operators report on-time rental payments. They won’t even say who some of their clients might be. “We do not disclose information about our customers,” Maitri Johnson, vice president of multi-family at Trans Union, told me in an e-mail response to several questions

But they all believe such reporting should be universal. “Ideally,” said Johnson, “all landlords should participate in a rent payment reporting program.”

The reason is pretty straight forward. “More data leads to better credit decisions,” Chris Hobday, vice president of USIS programs at Equifax, said in response to the same questions. Johnson at TU put it like this: It “encourages residents to continue paying on time and allows property managers to see delinquencies in real time as they screen applicants ... The availability of data can strengthen the industry overall; it’s good for the ecosystem.”

Indeed, a 2019 survey by TransUnion found that seven out of 10 renters are more likely to make on-time payments if payments, ontime or otherwise, were reported. Moreover, when choosing between two identical apartments, twothirds said they’d pick the one that reports their payments.

Unfortunately, according to Hobday, most property managers “choose not to report.” Perhaps it’s too costly, though the repositories are loathe to discuss pricing. Or perhaps, as Hobday said, “it’s just too hard.”

THERE’S AN APP …

To make it easier, the three credit repositories all work with thirdparty processors – the likes of RentReporters, Rent Track, Rent Dynamics and Datalinx – to help facilitate rental payment reporting. Just recently, Equifax unveiled a new direct-to-consumer partnership with Esusu, Zingo and Mobility Capital Finance, or MoCaFi, that allow tenants to opt-in to include their payments as part of their respective credit reports.

Esusu, for example, partners with public and private sector developers to help them reduce turnover and missed payments. In the process, it also helps tenants build their all-important credit scores, those snapshots in time which show how well a consumer uses credit. Landlords aren’t the only ones who hold credit reports dear, of course. So do lenders.

All three Equifax partners also will give participating tenants a free weekly or monthly credit score from VantageScore, a consumer credit-scoring model created through a joint venture of the three bureaus. And therein lies the marketing angle.

Rents payments are likely the largest monthly checks tenants write, something on the order of 30 percent of their disposable income, says Hobday. And research has shown that if rent payments are included in someone’s credit files, not only they be more likely to pay on time, their credit scores would rise, sometimes substantially. And perhaps sometime down the road, they will want to become home owners.

Most recently, a study by the Department of Housing and Urban Development of some 9,000 government-assisted households found that more than half their scores rose to a mortgage- acceptable 620 when rental payment data was included in the calculation. And an earlier report from New York City concluded that when rent payments are part of someone’s credit score, “renters benefit dramatically.”

POWERFUL TOOL

Currently, the average score for the sample of city residents paying under $2,000 a month –considered lowincome in the Big Apple – is 630. But some of these folks don’t even have a score. These people are known as “invisible” or “unscorable” because their files lack enough financial information to create a score. But one in four of them would have a “prime” score of 700 if their rental histories were reported, NYC reported.

Reporting rent “can be a powerful way to reduce credit invisibility,” Seth Appleton, HUD’s Assistant Secretary for Policy Development and Research, said in a statement. Added Michael Turner, a co-author of the HUD report and President of the Policy and Economic Research Council, the Durham-based non-partisan group which partnered with HUD in its research: “This study shows a path to mainstream credit for many HUDassisted tenants.”

Of course, we’re not talking just low-income renters here but market rate tenants as well. As Turner at HUD also noted, “tenants of all types” can be aided by leveraging rental payment data. Better yet, they are “open to it,” says Equifax’s Hobday, who points to last year’s Credit Builders Alliance survey that found that 97 percent would look favorably to rental payment reporting as a way to build their credit.

At this point, the landlords among you are probably asking, “Why should you be helping your tenants build credit? Wouldn’t that just help them move out and move on, possibly to a bigger, better apartment, or perhaps to a home of their own?” Those are good questions and only you can answer them.

But consider this. Not everyone yearns to own, and not every owner wants to remain so. A new study by LendingTree of 1,500 renters found that one in four – 25 percent – never, ever expect to buy a house, and 28 percent expect to return to renting sometime this decade. Furthermore, 16 percent won’t even start looking at houses for another five years or so.

HELPING HAND

As for the rest, yes, you may be helping them move out, perhaps

sooner rather than later, by reporting their rental histories. But they probably are going to leave anyway. It’s just a matter of time. So why not be known as the landlord who helps people continue up the ladder to home ownership?

Moreover, you can help your residents improve their entire financial picture, because mortgage companies and property managers aren’t the only ones who use credit scores as a key determinate in whether or not to clear applicants. Employers use them too, as do insurance companies, finance companies and auto lenders. Even utilities take scores into account.

Take auto loans as an example. According to Experian, car buyers with the highest credit scores pay an average of 3.7 percent for their financing, while those with the lowest scores pay as much as 14 percent. If a low-score tenant could lower that latter rate because you reported his on-time payments, he’d have more cash at the end of the month to pay his rent or make his house payment.

And maybe, just maybe, you would have helped him or her improve their scores to a point where they’d lead entirely better lives, at least financially.

Lew Sichelman has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.