Credit reporting incentivizes on-time rent payments, credit bureau finds
Whenever the calendar rolls over to a new month, it can set the stage for conflict between landlords and tenants. Landlords often allow a grace period for receiving the month's rent, but will eventually have to demand the money for any missed or late payments. Tenants may withhold rent until a landlord fixes a problem with their residence, wait until a paycheck clears, or even ask to skip a payment or two if they are facing financial troubles.
Disputes over the rent can easily become rancorous and unpleasant for both parties. But a recent survey by the credit bureau TransUnion suggests that there may be an easy way to encourage more on-time payments: having such payments count toward a tenant's credit score.
While on-time mortgage payments help homeowners build and maintain robust credit scores, rent payments typically aren't reported to credit bureaus. As such, renters don't realize the same benefit even if they pay their landlord on time each month.
The TransUnion survey, which collected responses from 1,330 renters and 74 executives of multifamily properties in May, found that 73 percent of renters would be more likely to make timely payments if their property managers reported this activity to a credit bureau. Sixty-seven percent of renters said they would choose a rental property with credit reporting over an identical one that didn't offer this service.
"We are bringing more awareness to the prospect of rent payment reporting because both renters and property managers can reap the benefits of this practice," said Maitri Johnson, vice president of multifamily at TransUnion. "Property managers that offer rent payment reporting are incentivizing residents to pay on time because there is a tangible benefit. Consumers that pay their rent on time—especially those who are younger and new to credit—can see this alternative data source help them to build their credit history towards a more secure financial future."
Younger renters were more interested in rent reporting. Between 76 and 79 percent of those born in 1965 or after said they would be more likely to make on-time payments with this service, while 67 to 73 percent said they would prefer to choose a property that reported on-time rent payments over one that didn't. By contrast, 58 percent of those born between 1946 and 1964 said they would be more likely to make timely payments while 62 percent would prefer a property with rent reporting.
A previous study by TransUnion, completed in 2017, found that renters who were considered "unscorable" were able to merit a credit score after making a year of rent payments to a property manager who reported them to credit bureaus. The practice also helped renters with subprime credit scores improve their score by up to 26 points over the course of a year.
"Including this form of alternative data on a credit report not only has the potential to boost credit scores in the near-term for consumers who pay on time, it can also benefit consumers down the road as they look to obtain lower interest rates, qualify for more credit products, or gain access to higher credit lines or personal loans," said Johnson.
Just 17 percent of multifamily property managers in the survey said they report rent payments to credit bureaus. However, 65 percent said they were aware that there were benefits to doing so.
Eighty-four percent of property managers said they would be more likely to report rent payments to a credit bureau if it would help attract buyers who made timely payments, while almost 82 percent said they would do so if it would encourage their renters to pay on time. About 82 percent said they would likely use the service if it would lower the risk of evictions or tenants who skipped payments.
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