by Manjit Sohal
It was a move that made its fair share of headlines in the trade and business press.
In late 2021, Freddie Mac announced an initiative to encourage apartment owners and operators to report on-time rent payments to the major credit bureaus. Under the terms of the program, Freddie Mac provides closing cost credits on multifamily loans for owners of rental properties who agree to report these payments.
The announcement added momentum to the growing sense among public officials, as well as members of the apartment industry, that residents who pay their rents on time and in full should see a corresponding benefit to their credit histories. According to Freddie Mac, less than 10% of renters currently see their on-time rental payment history reflected in their credit histories.
Freddie Mac’s new initiative came only months after California’s SB 1157 went into effect on July 1, 2021. The law requires operators of multifamily units in California that receive federal, state, or local subsidies to offer each resident in a subsidized apartment home the option of having their rental payments reported to a major credit bureau.
Colorado and Washington, D.C., have also taken steps to help renters in need improve their financial standing through on-time and in-full rent payments.
In 2021, Colorado House Bill 21-1134 became law. The bill created the Tenant Credit Reporting Pilot Program, which will be administered by the Colorado Housing and Finance Authority. During the pilot, renters at participating properties may elect to have their rent payment information sent to consumer reporting agencies to build and improve their credit. The program will conclude no later than 2024, and the state will then evaluate the impact and success of the pilot.
Meanwhile, Washington, D.C., has in recent years launched its Rent Reporting for Credit Building program, which gives residents of public housing the option to have their on-time and in-full rent payments reported to credit bureaus.
In addition, the Credit Builders Alliance (CBA) has launched its Rent Reporting Technical Assistance Center, which aims to reduce barriers for affordable housing providers to report rental data and to foster the industry collaboration needed to scale reporting. Furthermore, the Consumer Data Industry Association’s Rental Empowerment Project is currently working to increase reporting of rental payment history information by rental housing owners and managers through the development and adoption of a uniform, universal data reporting format.
When you look at the data, you can see why there’s a growing enthusiasm for reporting positive rental payment histories.
Renters are seven times more likely to be credit invisible – meaning they lack enough credit history to generate a credit score – when compared to homeowners, according to CBA. The fact that rent payments typically don’t help build credit history also is particularly harmful to lower-income households and communities of color. Renters make up approximately 60% of the U.S. households that make less than $25,000 a year, while Black and Hispanic households are twice as likely as White households to rent, CBA says.
In CBA’s Power of Rent Reporting pilot, 100% of renters who started off with no credit score became scorable at the near-prime or prime level. In addition, residents with subprime scores saw their scores increase by an average of 32 points.
Taking a step back, the benefits of rent reporting aren’t reaped by renters alone. By doing this, operators can gain a competitive advantage over nearby properties that don’t provide this service, and they also give residents an incentive to pay their rent on time.
With benefits like this, we are bound to see rent reporting continue to grow across the industry as 2023 unfolds.
Share your thoughts with your network: Will we see the rent reporting trends continue in 2023? Who are you reaching out to for rent reporting?