The Benefits of Helping Renters Build Credit

Today, renters in the U.S. occupy almost 44 million housing units, according to statista.com. And the roof over their head heavily depends on how good their credit score is.

One of the fastest ways for them to build that credit is to have their positive rent payments reported to the three major credit bureaus—Equifax, Experian and TransUnion—and property management companies can play a key role in building their renters’ credit profiles and scores. For example, operators using resident portals such as Rent Café can easily report positive rent payments through the platform. Rent Café uses Experian RentBureau to include positive rental payment data in Experian credit reports.

“When renters feel supported by property management and landlords, they are much more likely to be satisfied with the resident experience, which boosts collection and retention rates at these apartment communities,” Jonathan Needell, president & CIO of Kairos Investment Management Co., told Multi-Housing News.

In March, the investment and asset management company launched a new program for its affordable housing communities to help residents improve their credit scores. Led by fintech company Esusu, the program is a win-win for both stakeholders and residents, according to Needell. Renters whose payments are reported are highly motivated to continue making on-time payments, which results in higher property returns and stable occupancy levels.

“By enrolling into this program, residents can strengthen or grow their credit profiles, which can open the door for opportunities such as qualifying for employment, auto loans and credit cards,” Needell added.

Companies providing credit monitoring services, such as IDIQ, have taken note of the growing number of residents understanding the benefits of having their positive rent payments reported. In April, IDIQ acquired Resident-Link, a service that enables residents to build and establish their credit.

“Residents view this amenity as something that directly benefits them personally,” said Sherrie Hubler, vice president of Resident-Link. “Unlike other amenities some residents might not use, credit is something each of us needs today.”

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Why help residents build credit?

Some property managers might hesitate to report positive rent payments because they think that this might encourage residents to move out eventually, or even shift to homeownership. But for many renters, rent reporting can also help them establish credit for the first time or restore credit that was affected by health problems or unemployment.

Jonathan Rose Director of Social Impact Lori Stanlick said that reporting positive rent payments acts as an “element of hope” because residents don’t always realize that simply paying on time can have a positive effect on their own financial well-being. The company also works alongside Esusu, with the partnership extending across its national portfolio of affordable and mixed-income communities of more than 18,000 apartment homes.

“Improving credit positions the resident to receive lower interest loans, lower APR lines of credit and better employment. These attainments help the individual become more stable in their affordable housing setting, and improve quality of life for individuals and their families,” Stanlick added.

For Kairos, reporting positive rent payments is a way to give back to renters and make financial literacy accessible. “We see this as an investment in our community base and as a strong part of our commitment to longstanding affordability. Tenants that are educated about credit are better tenants,” Needell noticed.

At Rose Community Management, rent reporting is seen as an avenue to improve residents’ financial inclusion, providing them more opportunity to participate at all levels of the economy, according to President Kevin McKee.

How does reporting rent payments benefit investors and managers?

Property managers can look at reporting rent payments as an extra perk that complements the physical amenity package. It can help them attract new residents, further their ESG goals and, ultimately, exceed residents’ needs and expectations.

“(Reporting rent payments) can lead to renters consistently making on-time payments, stable occupancy levels and the property’s ability to maximize returns,” Needell said.

Hubler also believes that reporting rent payments to major credit bureaus can directly impact investors and managers’ client base by providing better qualified prospects, more timely rent payments, reduced turnover and ancillary revenue.

This service can even open a new window for marketing apartments. Renters who need to create or build up credit are more likely to rent a unit in a community that offers them the possibility to enroll into a program that strengthens their credit profiles. And this is something that the marketing department could exploit.

Esusu data shows that rent reporting is a low-cost differentiated amenity that attracts renters, leads to higher likelihood of lease renewals, better retention and increased trust with residents. Furthermore, when residents are more financially stable, the eviction risk decreases, while the average credit score of a property increases.

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Recently, Jonathan Rose Cos. reported that their partnership with Esusu led to 95 percent of residents improving their credit scores. The two entities launched their collaboration two years ago with residents from four properties in Harlem, N.Y., and Stamford, Conn.

Besides having their rental data reported to the three major credit bureaus, residents were also able to access Esusu’s rent relief fund throughout the pandemic, supporting them in staying on top of monthly rental payments. Now, the property management company intends to expand this program to its full portfolio of 80 properties and 12,500+ units across 11 states.

Freddie Mac also recently announced that it will provide closing cost credits on multifamily loans for owners of rental properties who agree to report positive rental payments through Esusu’s platform. Nowadays, fewer than 10 percent of renters see their on-time rental payment history reflected in their credit scores.

“Rent payments are often the single largest monthly line item in a family’s budget, but paying your rent on time does not show up in a credit report like a mortgage payment,” said Michael DeVito, CEO of Freddie Mac, in a prepared statement. “That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car or even education. While there remains more to do, this is a meaningful step in addressing this age-old problem.”