March 29, 2016 by Jake M.
Back in 2014, a report was released by the Experian RentBureau, Credit for Renting: The Impact of Positive Rent Reporting on Subsidized Housing Residents. This report was based off a new concept and process Experian wanted to test concerning rental residents and their credit histories. This report describes what they were able to observe as results to a new type of credit reporting was allowed. Subsidized residents with positive track records of timely rent payments, can choose to include their rental payment history to improve and build their credit.
Subsidized housing residents tend to be excluded from the financial services and products that the typical non-renter is able to receive, due to credit report histories — both the minimal and non-existent credit backgrounds. For years, the only type of reported rent payments to the credit bureaus would be that of negative impact, such as missed or delinquent payments. Experian initiated a new project in which they set up a meeting with property managers in order to get viable information regarding the resident’s payment history reported positively on their credit files.
During this process and reporting change, they added rent payment data from nearly 20,000 leases nationwide to their own credit database from initiated leases between 1994 and 2013.
They utilized a variety of simulations to best analyze the impact and consequences of rent payment data on consumer credit reports and credit scores — ultimately, the size of their credit file as well. As lenders consider credit applications and approve or deny them, they refer to the size of the credit file and how many diverse credit accounts the consumer has within it, referring to it as the “thickness” of their credit file. Three categories are relevant in defining the size of the credit file; “no hit” (no credit history), “thin file” (two or less reported accounts), and a “thick file” (three or more reported accounts).
Before they decided to start adding positive rent payments to credit histories, 11% of subsidized housing residents were reported as having no credit history, with 41% of the sample having thin files. Once this reporting of positive rent payment history was implemented, those residents that had no prior credit histories, all became thin file holders. Of those previous thin file consumers, 23% of that group became thick file holders.
Those are fantastic signs of growth and it surely has improved the lives of many consumers, however that is just the icing on the cake. By including rent payments into credit histories, 75% of the study population who had a credit file already, experienced rises in their scores by 11% or more. The mean of increased scores was reported as 29 points. Credit scores involved in this study were separated into three risk sections, subprime (300-600), nonprime (601-660), and prime (661-850). Those that fit within the subprime segment were faced with limited access to credit, including higher interest rates, and fewer credit offers available to them. 65% of the study population were placed within the subprime segment before the opportunity of adding positive rent payment history to their scores.
This has proven to be an excellent opportunity for subsidized residents and consumers. 84% of those subprime renters and 50% of the nonprime renters saw increases in their credit scores. Fewer people now are labeled in the subprime group as they moved their way from nonprime and prime risk categories. Those within the nonprime and prime segments increased by an estimated 92% for nonprime and 24% for prime consumers. For the 11% of residents that were considered unscorable, a whomping 97% of them transferred to the nonprime and prime risk segments, in turn proving that most subsidized residents were faithful with their payments and were consistent in paying their rent on time, finally rewarded on their credit report.
For any consumers unable to gain access to financial services, credit lines, or loans with low interest rates, this process released in 2014 can help you achieve that which was extremely daunting previously. Experian RentBureau strongly believes that any residents who pay their rental payments on time should not be hindered from the financial services they wish to obtain, only because they don’t pay a mortgage, but rent instead. Experian advises property managers or owners to include their resident’s positive rent payments to their credit files, helping them achieve a new reach they did not have prior to this exciting change.
Wouldn’t it be convenient to have a service that assisted you with this? Well, one such does exist. Rentalkharma.com will assist by adding 2 years of your rental payment history and apply it to your credit reports, allowing you to start building your credit now. Don’t miss this chance for an easy, quick, and exciting process that does this for you!
If you would like a copy of the study, visit here.