Credit is a fantastic tool that allows economic mobility and leverage. But for lower-income Americans, growing their credit and maintaining solid scores can be difficult. Now, Experian has partnered with a game-changing nonprofit to create a way for all Americans to build credit easily—through rentals.
Renting has been a credit-building option for a while now. All of the major credit bureaus accept rental reports as credit history—but they’re typically contingent on landlords reporting the information voluntarily, which doesn’t always happen.
Among both landlords and renters, awareness for rental reporting is low. Most renters don’t know they can build credit while renting, which is why the Credit Builders Alliance (CBA), a nonprofit network designed to bridge the gap between individuals with low or no credit and the modern reporting system, is creating a Rent Reporting Technical Assistance Center (RRTAC) in partnership with Experian.
What is the RRTAC?
According to Dara Duguay, the CBA CEO, RRTAC “will function as a one-stop-shop to assist landlords for low-income tenants. Coupled with extensive technical assistance provided by CBA, the affordable housing providers will have a road map and guidance for adding rent reporting to their operations.”
The overarching goal: Make it easier for renters to add to or build up their credit history. For many low-income families, renting is the only option. When landlords don’t report to credit agencies, these renters aren’t given due “credit” for on-time payments.
According to the CBA, renters tend to have lower incomes compared to homeowners. The median annual income of a renter in 2021 is roughly $43,000, and nearly 42% of renters make less than $35,000 per year. Renters are also seven times more likely to be “credit invisible” compared to homeowners—that means most renters don’t have sufficient credit history to generate a credit score.
Furthermore, the CBA states that Black and Hispanic households are twice as likely to rent compared to White households. That’s clear evidence that RRTAC could play a critical role in healing the racial wealth gap in America.
Does rental credit reporting work?
There’s evidence that it does.
In 2019, the US Department of Housing and Urban Development conducted a study on renters and tracked their credit scores once rent payments were reported.
At the start, 49% of renters had no credit score on one of the scoring models used. By the end of the trial, that number fell to 7%. Using another scoring model, the rate of renters with no credit fell from 11% to 0%.
Other studies have found that for renters with a pre-established credit score of at least 620, scores increased by nearly 30 to 45 points on average after continual reporting of rental payments. The largest score increase was a whopping 215 points.
Credit improvements often appear relatively quickly, too. In a study by TransUnion, approximately 80% of subprime renters experienced an increase in their credit score just one month into rent reporting. About 41% saw their VantageScore increase by at least 10 points after one month.
Can credit reporting help landlords?
But the results aren’t just good for renters. The program helps landlords, too.
A study by the Cleveland Housing Network found that on-time rent payments increased by 25% when landlords reported to credit bureaus. The reason? More incentive.
Yes, eviction is technically a major incentive, too. But so are high credit scores and wanting to avoid bad marks on your report—and that’s positive reinforcement, versus the negative consequence of eviction. (Studies show positive reinforcement is more effective!) Plus, credit scores are tangible and accessible, with some apps making the experience of watching a score increase and decrease feel more like a video game than real life.
These factors, combined, cause more renters to pay on time.
How is the program being implemented?
California has been a major RRTAC early adopter.
Last year, California Senate Bill 1157 passed in the state legislature. The bill requires affordable housing providers with 15 or more units to report their tenants’ credit histories. The law exempts landlords of assisted housing with fewer than 15 units unless the landlord owns more than one development of assisted housing and resides in a real estate investment trust or owns the property through a corporation.
The California legislature promotes rent reporting as a powerful means of economic mobility which can narrow the racial wealth gap.
As more states and landlords adopt rent reporting, it will be interesting to see how this discussion pans out. Will the industry be forced to adopt rental reporting by force of law? Or will everyone flip to the same page on their own?