Credit is a fantastic tool that allows for economic dynamism and leverage. But for low-income Americans, it can be difficult to increase their credit and maintain a solid score. Now, Experian has partnered with a game-changing nonprofit to create an easy way to create credit for all Americans মাধ্যমে through rental.
Renting for a while is a credit-building option. All major credit bureaus accept rent reports as credit history ক but they usually report information voluntarily on landlords, which is not always the case.
Among both landlords and tenants, awareness for rent reporting is low. Most tenants don’t know they can generate credit when renting, so the Credit Builders Alliance (CBA), a nonprofit network designed to bridge the gap between low and no credit and modern reporting systems, is creating a rental reporting Experian In collaboration with the Technical Assistance Center (RRTAC).
What is RRTAC?
According to Dara Dugue, CEO of CRA, RRTAC “will act as a one-stop-shop to assist low-income tenants. Combined with the extensive technical support provided by the CBA, affordable housing providers will have a roadmap and guidelines for adding rent reports to their activities.
Maximum goal: make it easy for tenants to add or create their credit history. For many low-income families, renting is the only option. When landlords do not report to the credit agency, these tenants are not given “credit” for timely payments.
According to the CBA, tenants have lower incomes than landlords. The average annual income of a tenant in 2021 is about 43 43,000 and about 42% of tenants earn less than 35 35,000 per year. Tenants are also seven times more likely to be “credit invisible” than landlords – meaning most tenants don’t have enough credit history to create a credit score.
Moreover, the CBA says black and Hispanic families are twice as likely to be rented than white families. This is clear evidence that the RRTAC can play an important role in bridging the ethnic wealth gap in America.
Does Rental Credit Reporting Work?
There is evidence that there is.
In 2019, the U.S. Department of Housing and Urban Development conducted a study on tenants and tracked their credit scores after receiving news of rent payments.
Initially, 49% of tenants did not have a credit score in one of the scoring models used. At the end of the trial, that number dropped to 7%. Using another scoring model, the rate of tenants without any credit has dropped from 11% to 0%.
Other studies have found that for tenants with a predetermined credit score of at least 620, the score increased by an average of about 30 to 45 points after continuous reporting of rent payments. The biggest score increase was 215 points.
Credit improvements often appear relatively quickly. A study by TransUnion found that about 80% of subprime tenants reported an increase in their credit score in just one month. About 41% increased their VantageScore by at least 10 points a month later.
Can Credit Reporting Help Homeowners?
But the results aren’t just good for tenants. The program also helps homeowners.
A study by the Cleveland Housing Network found that landlords increased rent payments by 25% on time when they reported to the credit bureau. Because? More incentives.
Yes, eviction is also technically a big incentive. But so do you want to avoid high credit scores and bad marks on your report – and this is a positive reinforcement, versus the negative consequences of eviction. (Studies show that positive reinforcement is more effective!) Also, credit scores are real and accessible, with some apps experiencing score increases and decreases that feel more like a video game than real life.
These factors, collectively, pay more tenants on time.
How is the program being implemented?
California has been a major RRTAC early adopter.
Last year, California Senate Bill 1157 was passed in the state legislature. The bill requires affordable housing providers with 15 or more units to report the credit history of their tenants. The law exempts landlords who support less than 15 units unless the landlord owns multiple subsidiary housing and is in a real estate investment trust or owns property through a corporation.
The California Legislature promotes rent reporting as a powerful means of economic dynamism that can narrow the gap between ethnic resources.
As more states and landlords accept rent reports, it will be interesting to see how this discussion ends. Will the industry be forced to accept rental reporting under the pressure of law? Or will everyone turn to their own page?