A new TransUnion analysis found that the reporting of rental payment information to the credit bureaus in a manner similar to other financial obligations could have a positive effect for the majority of subprime consumers' credit. The subprime segment of the population, those consumers who may be viewed as higher credit risks, could experience positive effects with only one month of on-time rental payment information. The findings were unveiled at the National Apartment Association's Education Conference & Exposition in Denver.
The analysis found that approximately eight in 10 subprime consumers (79.1 percent of those with a VantageScore 2.0 credit score lower than 641 on a scale from 501 to 990) experienced an increase in their score one month into their new apartment lease. Nearly 41 percent of subprime consumers saw their VantageScore increase by 10 points or more after one month.
"Following the mortgage crisis during the last recession, home ownership rates have declined to 20-year lows as many consumers choose to rent. In fact, there are now 40 million American renter households in 2013, which is up nearly five million since 2007," said Tim Martin, executive vice president at TransUnion. "Despite millions more renters, most rental payment histories are not provided to credit bureaus, and renters looking to improve their credit standing cannot do so. To that end, TransUnion is introducing ResidentCredit, a newly-expanded service that encourages property managers to report the payment performance of their apartment residents."
The TransUnion ResidentCredit service is a relatively simple process. Property managers will submit data about their residents to TransUnion each month, reporting the amount and timeliness of their last payment, and any balance owed. This rental payment information will appear on their consumer files alongside their other financial obligations such as auto loans, credit cards, and student loans.
TransUnion's research also compared the credit score impact of being a first-time homebuyer (where the mortgage payment is reported to the credit bureaus) versus being a renter (where the apartment rental payment is not reported). The research found that, on average, those who became first-time home buyers in early 2012 experienced a 5.2 percent increase in their credit score over the next year. However, the average renter actually saw a slight decline (-0.4 percent) in credit score during this same timeframe.
In addition to the potential positive impact already described for subprime renters, TransUnion's analysis found that the majority of the overall renter population could also benefit from having their rental payments reported via ResidentCredit. Nearly seven in 10 renters (66.7 percent) in the analysis experienced positive or neutral VantageScore credit score changes after just one month. Nearly two in 10 renters (18.8 percent) saw a 10-point increase to their score or better in the first month.
"We believe reporting rental payment performance is simply the right thing to do for apartment residents and the apartment rental industry," said Martin. "Renters will be able to build positive credit history, gain access to more financial products, and most importantly, help them recover from the housing market crash. At the same time, property managers will have more certainty about residents' payment history and will get to recognize on-time payments, which should help improve future payment performance and lower the need for costly evictions."
To support this positive industry-wide initiative, TransUnion will charge no fees to report rental payment information via ResidentCredit. In addition, TransUnion ResidentCredit is credit bureau agnostic. If the property manager who furnishes the data requests it, TransUnion will share the information reported with other national credit reporting companies to be included in their consumer credit files and scores.