Main Takeaway: Adding renter payment data to credit reporting significantly increases credit scores and ultimately reduces economic marginalization. But there are also benefits for multifamily owners and investors such as increased on-time rent payments, reduced vacancy, and access to better tenant screening credit data.
Story: Rent payments are traditionally not included in credit reporting, leading to disadvantages for those renting when they look to obtain any type of credit, particularly a mortgage.
To help fix this issue, Fannie Mae launched its Multifamily Positive Rent Payment Reporting pilot program. This is meant to help renters build a better credit history and ultimately improve their credit scores. Through a vendor network, eligible multifamily owners can share rent payment data with three different credit bureaus. This is a positive rent payment initiative, meaning that missed rent cannot be reported and renters can opt out of the program.
Fannie Mae is reimbursing the cost of this pilot initiative for 1 year, which began in September. On average, the cost is $1.50 – $1.60/unit/month, and eligible properties include those that are active Fannie Mae debt and have five or more years left to maturity.
Fannie Mae is also working with three fintech vendors to report positive rent payments to credit bureaus: Esusu, Jetty, and Rent Dynamics. Owners can sign up here. This program also allows for additional services to be provided to renters and landlords such as:
- Offering emergency rent loans
- Providing budgeting solutions to help renters stay current
- Reporting up to 24 months of previous on-time payments
The National Multi Housing Council (NMHC) recently released a paper titled, Renter Payment Reporting: Considerations for Rental Housing Operators. In it, they conclude that:
Renter payment history reporting presents great opportunity for both operators and renters. For renters, they can kickstart an individual’s financial profile and help them secure other credit opportunities. This in, turn, creates more equitable outcomes for our resident populations and helps improve their economic mobility and household affordability. The programs also provide rental housing operators access to lease-relevant insight to inform rental applicant risk Assessments. As such, multifamily operators are increasingly (re-)considering their role in renter payment reporting.
NMHC also outlines a 3 tier model to rent reporting:
The benefits of rent reporting are clear. According to a study by TransUnion, 70% of renters are more inclined to pay rent on time when their payments are being reported. Further, choosing between two similar apartments, 67% of renters said they would choose the one with reporting in place.
TransUnion also found that “100% of residents who were considered unscorable at the time of application became scorable following a year of rent payment reporting. The analysis also found that subprime consumers who make timely rental payments may see their credit score increase by as much as 26 points over the same time period.”
Property managers want reporting as well. The same survey found that 82% of managers were somewhat or very likely to report rental payments “if they could help incent residents’ behavior to have them pay on a timely basis.” Ultimately, all of this can help reduce non-payments, evictions, turnover, and improve NOIs.
RealPage also has a rent reporting feature, which is a monthly subscription that allows residents to build their credit by automatically reporting monthly rent payment activity to Equifax, Experian, and TransUnion.
Expert Take on Rent Payment Reporting to Credit Bureaus
“The absence of sufficient credit history reduces a renter’s ability to access housing in higher-opportunity neighborhoods, obtain a mortgage, and attain lower-cost credit, such as auto loans and education financing. By enabling easier and more expansive adoption of positive rent payment reporting, we can knock down this longstanding barrier to building credit and help more consumers begin to establish a strong financial and credit foundation.” — Michele Evans, Executive Vice President and Head of Multifamily, Fannie Mae
“We are bringing more awareness to the prospect of rent payment reporting because both renters and property managers can reap the benefits of this practice. Property managers that offer rent payment reporting are incentivizing residents to pay on-time because there is a tangible benefit. Consumers that pay their rent on time – especially those who are younger and new to credit – can see this alternative data source help them to build their credit history towards a more secure financial future.” — Maitri Johnson, Vice President of Multifamily at TransUnion