Rental Payments Improve Credit Scores – Property Managers Can Make A Difference
May 26, 2016
Debra Hill-Fox
Educator, Arizona School of Real Estate & Business
Successful property managers are always looking for new ways to increase property revenues, set the appropriate screening standards, incentivize on-time rental payments, reduce turnover and retain the best tenants.
Providing tenants with a rent payment reporting opportunity can be an answer to achieving these goals by providing an added service that few property management companies can match. Rent payment reporting can significantly improve a property manager’s numbers – while helping qualified tenants.
Recent credit report studies show that in most cases there is an immediate benefit to the consumer when on-time rental payment history is reported. In fact, one pilot study by the Washington, D.C. nonprofit Credit Builders Alliance showed a large majority of participants reporting rental history (70 percent) experienced an increase in their credit score by an average of 23 points. This increase can substantially make a difference for a consumer in need of a credit boost.
Low credit scores have become a “norm” in today’s society due to the Great Recession. As a result, major credit card reporting agencies, professionals in mortgage and lending industries have developed new ways of incorporating alternative data into the credit review process. Credit bureaus now recognize that on-time rental payment history data added to a consumer’s credit report is valuable when factored into credit decisions – TransUnion is particularly active in this area. A good rental payment history can help credit scores and may be factored into home purchase credit decisions as well.
Consumers who rent and are looking to build credit, reduce high interest rates and aspire to purchase a home can significantly benefit from rental payment reporting. At the same time, property management companies that focus on primarily leasing and selling single family homes can also benefit.
Stumbling blocks still exist in this new credit process. In order for rental payment history to be factored into the review equation, the data must be incorporated into the credit bureau’s files – and ultimately a consumer’s credit profile.
How can property management companies provide this service for their tenants? What time is required and what are the regulations from the Fair Credit Reporting Act?
- Become credentialed with one or all of the credit bureaus. Build reporting conversion templates applicable to the credit bureau specifications and faithfully report the tenants’ monthly rental data. Be sure to remain accountable for all reported data.
- Work with a local third party service who has experience and the proper credentials in rent payment reporting. These companies take the administrative portion of this process while working with property management teams to achieve goals. Conversion of tenants’ past and ongoing rental payments are reported to the major credit bureaus.
Rent payment reporting is beneficial for all parties involved – property managers and tenants. Taking extra steps can deliver maximum results.