Topics and Issues

Rent reporting (18)

 

The U.S. Department of Housing and Urban Development (with PERC)

HUD/PERC Study, Potential Impacts of Credit Reporting Public Housing Rental Payment Data (2020)

Fannie Mae

  • Michelle Lerner, Fannie Mae to include rent payments in mortgage applicants’ credit history review, Wash. Post, Sept. 8, 2021.
  • Fannie Mae, which is committed to expanding home ownership to non-traditional borrowers, announced in 2021 that it will launch a system which will “will enable single-family lenders – with permission from mortgage applicants – to automatically identify recurring rent payments in the applicant’s bank statement data to deliver a more inclusive credit assessment. For qualified renters who may have limited credit history but a strong rent payment history, Fannie Mae’s…enhancement creates new opportunities for homeownership while promoting safe and sound lending.” Press release, Fannie Mae, Fannie Mae Introduces New Underwriting Innovation to Help More Renters Become Homeowners, Aug. 11, 2021. In a blog post on the new initiative, Fannie Mae’s CEO, Hugh Frater wrote that “In a recent sample of applicants who had not owned a home in the past three years and did not receive a favorable recommendation through Desktop Underwriter, 17% could have received an Approve/Eligible recommendation if their rental payment history had been considered.” Blog, Helping Renters Unlock the Door to Homeownership Aug. 11, 2021.

The New York City Office of the Comptroller

Making Rent Count: How NYC Tenants Can Lift Credit Scores and Save Money, New York City Comptroller Scott M. Stringer, Oct. 2017.

District of Columbia (with Credit Builders Alliance, Esusu, and TransUnion)

Passed by D.C. City Council in 2018 and funded in 2020, D.C. Law 22-154 directed the District of Columbia Housing Authority (DCHA) to design and implement a small, 12-month long rent reporting pilot program in one or more of its public housing developments. Public Housing Credit-Building Pilot Program Amendment Act of 2018. Credit Building and Rent Reporting Pilot Updates, D.C. Housing Authority, March 2021.

DCHA selected the non-profit Credit Builders Alliance (CBA) to provide technical assistance, retained ESUSU Financial Inc, as its rental reporting technology provider, and selected TransUnion as the initial credit bureau to which rental payments would be reported. Between September 2020 and August 2021 DCHA selected 10 developments to participate in the pilot, with enrollment reaching a total of 20 participants by February 2021. Of these, DCHA reports that after 6 months of rent reporting, around 14 have improved their credit score by an average of 49 points, and three residents established a credit score for the first time. DCHA, Credit Building and Rent Reporting: Pilot Program Updates, March 2021.

The pilot program was a huge success. “Among DCHA residents participating in rent reporting, 75% have seen an improvement in their credit score by an average of 29 points. Four residents were able to establish a credit score for the first time. DCHA plans to continue growing its rent reporting program in the coming years and frequently serves as a mentor to other housing providers seeking to replicate their efforts.” DC Rent Reporting Story and Film Release.

TransUnion

  • TransUnion offers a service called ResidentCredit where positive and negative rental payment information is reported to the consumer reporting agency (CRA).  TransUnion found that when rental payments are reported, credit scores increase and late payments decrease.
  • For millions of American consumers, rent is the single-largest payment they make each month, yet they often to not get the credit that they deserve for timely rent payments.  A recent study from TransUnion found that

When rent payments were included in the credit file, consumers experienced an average increase of nearly 60 points to their credit score. The analysis included data through March 2021 and also found that the consumer population who generally has the least access to favorable terms for financial goods and services, the unscorable and subprime consumer cohorts, stand to gain the most with the largest credit score growth.

TransUnion’s analysis found that with the inclusion of rent payment tradelines in the credit file, approximately 9% of those consumers went from unscorable to scorable with an average credit score of 631 — placing them in the near prime score band (VantageScore 3.0 range of 601-660). This represents a significant improvement for consumers that would have otherwise been deemed unscorable and highlights the importance of a uniform, universal data reporting format to improve credit visibility.

. . .

The analysis also found that 12% of consumers shifted to a higher score tier when rent payments were added to the credit file. This finding was especially prevalent among subprime consumers (VantageScore 3.0 range of 300-600) who were reclassified as near prime. TransUnion’s ResidentCredit has also found that 60% of renters may see their credit scores increase as early as the first month of rent payment reporting. Press release, TransUnion, Alternative Data Such as Rent Payment Reporting Bridges the Gap for Unscorable Consumers and Increases Financial Inclusion Opportunities, July 15, 2021.

  • In December 2021, TransUnion looked at the ability to predict a 90+ days past due (DPD) delinquency over the course of 12 months on any type of credit obligation (i.e. auto loan, credit card, personal loan, etc.) and found that when rental tradelines were included in the credit file, there was a 10+% improvement in the model’s ability to predict delinquencies within a one year period, compared to when rental payments were not included.  Why is this relationship important?  Because, FannieMae and others are working hard to open doors to homeownership to millions of un- and under-banked consumers, whose biggest check each month is rent, for which they are not getting credit.  Steve Holden, Fannie Mae’s Vice President of Single-Family Analytics, said that “TransUnion’s findings support Fannie Mae’s belief that if someone is paying rent consistently it’s likely they could pay their mortgage consistently, too.  Wider consideration of rent payment history across the broader consumer reporting ecosystem could enable more financial institutions to similarly factor this type of credit data into their underwriting models. This is a win-win that demonstrates the potential of using technology and data to responsibly remove long-standing barriers to credit access, while helping to ensure consumers receive a more fair and inclusive credit eligibility assessment.” Press release, Rent Payment History Offers Greater Predictability into Consumer Credit Performance, TransUnion, Dec. 7, 2021. 

Experian

Although several aggregator-facilitated initiatives launched just prior to the COVID-19 pandemic, one of the earliest and highest profile efforts is Experian Boost. Begun in March 2019, it augments consumers’ Experian credit files where they authorize pulling positive payments information for designated utilities, telecommunications companies, and streaming services from their checking or credit card accounts. Jeff Softley, Blog, Experian Boost Adds Streaming Service Payments, experian.com (July 27, 2020). Experian expanded the program to the United Kingdom in late 2020, where it attracted 370,000 enrollments by March 2021.  Experian, Annual Report 2021 (2021).

The system does not require lenders to purchase a separate score or report or consumers to pay a fee for the reporting service, though they receive offers for other Experian products. Experian reportedly spent $47 million to market the service in its first year of operation and $69 million in its second year. Mya Frazier, When No Landlord Will Rent to You, Where Do You Go?, New York Times (May 20, 2021).  Through July 2021, approximately 7 million consumers have connected their accounts, with about two-thirds experiencing a score increase. Alex Lintner, Blog, Financial Inclusion Depends on Data, experian.com (July 6, 2021).

A more detailed report from February 2021 indicates that about half of previously unscoreable consumers who signed up for the service became scoreable and that about 41% of previously thin file consumers (defined as less than five accounts) changed to thick file status, although it did not include actual numbers.  Overall, the average improvement in FICO credit scores was 12 points, although consumers with thin files and scores in the lowest band experienced larger gains of 19 points and 22 points, respectively. Stefan Limbo Stolba, Blog, Experian Boost Helped Raise American Credit Scores by Over 50 Million Points, experian.com (Feb. 5, 2021).  Adding more trade lines is less likely to affect consumers who already have a large number of credit accounts and high scores. The company has previously reported that score declines occur in about 1% of cases, but has noted that consumers can disconnect their accounts if that occurs and that their scores will revert to being calculated without the supplemental information. Softley; Experian, Help Raise America’s Credit Scores, Experian.com (undated).

FinTechs

LevelCredit

  • LevelCredit has been reporting rental payment history on behalf of renters for many years, and those renters have seen results. In 2018, the company conducted a study looking at more than 36,000 of its users who had been reporting rent payments to the major credit reporting agencies for at least two years. LevelCredit analyzed four credit score brackets to see how much reporting rent impacted scores after reporting it for two months, one year and two years.  When rental payments are reported to a CRA, the data showed scores increased by an average of 20 points in two months, and 50 points after two years. The lower credit score bands saw the greatest score increases. Consumers who started with scores below 600 saw an average increase of 28 points within two months and 70 points after two years. Ian Cohen, How Reporting Rent Payments Affects Your Credit Score,  24, 2019.

Esusu

  • The benefits of rental reporting to consumer reporting agencies also helps landlords.  Esusu clients see an average 25% increase in on-time rent payments with rent reporting. Esusu, a FinTech platform that has a credit building program for rental payment information, said that “in reporting up to two years of on-time payments, individuals may see an increase of 30-100 points on their credit reports.” Press release, Rainbow and Esusu provide housing stability for low-income tenants, March 17, 2021. There are benefits to landlords that help them hold down costs for their tenants.  “Property owners who use Esusu have seen up to a 25 percent increase in their on-time rental payments.” AZRE, Rainbow and Esusu provide housing stability for low-income tenants, March 22, 2021.

 

  • Jonathan Rose Companies is “a leading developer of affordable residential communities.” In May 2022, the company announced that, because of its two-year rent reporting partnership with Esusu, 95% of the tenants in the program saw a “positive long-term credit impact.” In 2020,

Esusu and Jonathan Rose Companies launched their partnership…with residents from four Low-Income Housing Tax Credit (LIHTC) properties centered in Harlem, New York, and Stamford, Connecticut. The partnership enabled Jonathan Rose’s Harlem and Stamford residents to have their rental data reported to the three major credit bureaus (Equifax, Experian, and TransUnion) in order to build credit. Jonathan Rose Companies’ residents also had access to rent relief funds throughout the pandemic enabling dozens of residents to navigate financial shock and stay current with their rental payments.

In addition to helping renters establish new credit scores, Esusu and Jonathan Rose Companies saw a 10% reduction in poor credit scores; a 10% increase in the percentage of residents with excellent credit; and 95% of residents improve their credit scores.

Success is contagious. “Jonathan Rose Companies recently expanded this partnership to include its full portfolio of 80 properties and 12,500+ units across 11 states. To aid their efforts to scale rent-reporting, Jonathan Rose Companies is amongst the first to leverage Freddie Mac’s recently announced rent reporting initiative for multifamily borrowers, which provides benefits for borrowers implementing Esusu’s technology at scale.”

Esusu and Jonathan Rose Companies Partnership Leads to 95% of Residents Improving Their Credit Scores, Financial IT, May 20, 2022.

    • BH is a multifamily housing owner and operator founded in 1993, managing more than 100,000 units and 330 properties across the United States. BH set out to help its tenants get credit for rental payments and in December 2021, BH piloted its first property in Esusu’s rent reporting service to help residents establish and build their credit scores over time. Residents also gained access to Esusu Rent Relief, a 0% interest rent stability loan program for those who needed rental financial support. Through January and February, BH added 42 properties to the program.The results are clear. In only four months, more than 6,400 BH residents in the Esusu program are seeing improvements to their credit scores. 1.1% of BH residents have moved from the lower credit tiers (under 660, categorized as “Poor” and “Fair”) to the upper credit tiers (661 and above, categorized as “Good” and “Excellent”). 101 residents have now established credit scores for the first time, giving them access to things like car leases and home mortgages.BH will move to roll out Esusu to more properties over 2022. Esusu has already started reporting on-time rent payments from up to 12 months prior, and that allowed many residents to quickly see an improvement in their credit scores. https://esusurent.com/case-studies/bh/