In what it calls a “rigorous, data driven evaluation” of more than 600,000 renters, VantageScore says millions of adult renters could become mortgage-eligible if their on-time rental payments were incorporated into their credit reports.
The study found that adding a history of on-time rental payments to the VantageScore 4.0 credit score model improved predictive performance by 11%, confirming, the company said, that potential homebuyers with positive rental histories will benefit significantly from incorporating rental data into their credit reports.
When on-time rental payment tradelines were included, previously credit invisible consumers achieved an average VantageScore 4.0 of 654, the study found, and 99.7% of them received a score of at least 620, making them mortgage eligible under current GSE guidelines.
Borrowers who have few tradelines or have dormant or inactive accounts, as well as young renters saw the largest score gains. When their on-time rent payments were included, their average credit scores increased by as many as 67 points.
The results demonstrate that positive-only rental reporting is a powerful innovation that enhances predictive performance while broadening access to credit, the report maintained.
“Positive rental payments are highly predictive and allow VantageScore 4.0 to measure a borrower’s true ability to meet mortgage debt obligations,” said Dr. Andrada Pacheco, chief data scientist at VantageScore, in a statement.
The study proves, added Wemimo Abbey and Samit Hoel, co-founders and co-CEOs of Esusu, a firm which collects rental payment data from landlords and passes it on to credit reporting agencies, “what we’ve always believed: credit invisibility is not fate; it’s a policy choice we have the power to change.”
The message for consumers, Abbey and Goel said, is that their payment histories matter and their consistency counts.” Esusu provided the data for the VantageScore study.
Rent payments are the largest monthly expense for millions of Americans, yet they are invisible in the mortgage credit system because most landlords only report late payers, if they report rent payments at all. Only when renters grant landlords permission to report their on-time payments to companies like Esusu is it reported to credit agencies.
Most landlords refer late payers to collection agencies or sell their debt to a debt buyer. These third parties often report this negative information to the bureaus, where it then makes its way into tenants’ credit reports. However, positive rental data rarely if ever does.
Approximately 13% of renters currently benefit from positive rental reporting, VantageScore said. But adding positive rent data to the credit files extends mortgage eligibility to nearly four million renters whose credit score would rise to 620 or higher.
The Urban Institute estimates that there are nearly 45.4 million renter households 一 approximately one-third of all households 一 housing roughly 100 - 110 million people.
