Reporting on-time rent payments to credit bureaus is catching on among property managers and renters alike because it provides renters a valuable opportunity to build credit without incurring debt, while making rent collection easier for property managers.
If you’re not already familiar with rent reporting, the concept is simple: as a landlord or property manager, you share information about your tenants’ on-time rent payments with credit bureaus, including Experian, Transunion, and Equifax, so that your tenants’ rent payments will show up on their credit report and impact their score.
You are probably already familiar with the concept of reporting tenants to credit bureaus who routinely pay late or move out with an unpaid balance. Although this can be difficult, since you will likely have to subscribe directly to services offered by each credit bureau, it may be necessary to provide very delinquent tenants with the appropriate consequences and help recoup your lost rent.
However, many good tenants want to have their on-time payments reported to the credit bureaus, too. These renters want opportunities to increase their credit score and build up a positive credit history so that they will be able to save money with lower interest rates, qualify for new loans to buy a car or start a business, or even get approved for a mortgage someday in the future.
Building credit can be tough for young renters, those with a rocky credit history, or a thin credit file (which happens when credit bureaus don’t yet have much data on an individual). Typically, the only way to increase their credit score is to take on additional debt with a credit-builder loan or a new credit card. However, rent reporting is an alternative that doesn’t require them to take on any additional debt. It’s especially beneficial when rent is reported to all three bureaus, which is crucial for tenants when they apply for credit in the future.
The benefits for tenants are clear, but what about benefits for you as a landlord or property manager? Should you take advantage of rent reporting for your property? Though it requires an investment of time and effort just like any other new process you choose to implement, there are several good reasons why you should consider it.
1. It encourages on-time payments.
Rent reporting is a carrot on a stick that will encourage consistent, on-time rent payments from your tenants. When tenants know that their on-time payments will be included on their credit report, it gives them a strong reason to pay on time. They also know that you take late payments seriously, and if they pay late they risk having negative information reported to the credit bureaus. This consequence is a strong deterrent that will motivate them to prioritize paying rent on time each month.
2. It attracts rental applicants with good credit habits.
Finding great tenants is always a challenge, but advertising the credit-building benefits offered by your property will bring you more applicants who want to build their credit next time you’re filling a vacancy.
You need to attract enough applicants to fill a vacancy quickly, but you also need to carefully screen each applicant to be sure that you won’t run into problems later. Although you can always share the minimum credit score you’re looking for in your listing, you can also let prospective tenants know that you regularly report payments to credit bureaus. Those who have a history of paying late will be less likely to apply.
3. It gives your property a competitive edge in the market.
Amenities like a swimming pool, fitness facility or playground get your property noticed — but the opportunity to build credit by paying rent gives prospective renters even more reason to choose your property.
When comparing two rentals with similar cost and amenities, most tenants will choose the property that also offers them the opportunity to build credit by paying rent.
And compared to the high costs of investing in a new amenity like a pool, rent reporting is far less expensive.
4. It’s easier to set up than you think.
If you wanted to report rent to credit bureaus on your own, that would mean applying to become a data furnisher to each of the three bureaus, involving heavy compliance restrictions and administrative work. It might even require a site visit to be sure you have correct security measures in place for storing personal information, such as social security numbers. You’d also need to manage and investigate any disputes reported by tenants about incorrect information on their credit report. For most landlords, the hassle of becoming a data furnisher barely makes it worthwhile to report negative information — let alone positive data.
However, if you work with an official rent reporting agency who meets these legal requirements and has pre-existing relationships with all three credit bureaus, you can eliminate the logistical nightmare.
Though this may sound expensive, you can choose to either absorb the cost for tenants or pass some or all of it on to them since they will benefit from rent reporting should they choose to opt in. Plus, if you’re already using an accounting software that integrates with rent reporting tools, it’s even simpler.
A qualified rent reporting agency can also handle customer service requests from your tenants and your staff, with support staff specially trained to answer questions about rent reporting to build credit. Plus, you won’t have to worry about the heavy security or compliance requirements that come along with being a data furnisher — just make sure you choose a rent reporting service that’s properly equipped.
5. It gives tenants a reason to pay online, saving you hassle.
There are many reasons you may want your tenants to pay online. Fewer trips to the bank, bounced checks, and late payments — since tenants can pay anytime, anywhere. However, getting tenants to adopt a new online payment system can be slow going. But when online payments are coupled with the opportunity to earn credit for paying rent, it gives tenants a reason to start consistently paying online.
Of course you can always offer tenants the option to pay online without opting in for rent reporting. Some tenants may prefer this, though you may still want them encourage them to look into the benefits of rent reporting for themselves.
6. Rent reporting has proven benefits for tenants.
The evidence shows that rent reporting has a positive effect for renters, especially those who start off with lower scores, thin credit, or no credit.
Without any data in their credit reports, individuals can't get credit scores. Rent reporting can help. According to a study by Experian, "Following the addition of the positive rental tradelines, 100 percent of the previously no-hit [unscorable] residents in the study population subsequently were scorable." Simply put, every renter ended up with a credit score at the end of the study. And these scores were nothing to sneeze at — the average score for previously unscorable renters was 670 at the end of the study.
Of course, there are also benefits for those who already have a score. The study authors reported that, “The average VantageScore 3.0 score change for previously scorable participants in the study was an increase of 29 points.” The impact was particularly notable for those who began with a credit score in the “subprime” range, meaning their score was initially between 300 and 600. The study revealed that "Subprime and nonprime residents received the greatest positive credit score impact, with 84 percent of subprime residents and 50 percent of nonprime residents experiencing a positive score change."
Overall, rent reporting had a significant, positive impact for the renters in Experian’s study.
The Bottom Line
Whether you’re motivated by the practical benefits of encouraging timely payments from your tenants, the desire to give your tenants a valuable opportunity to build credit, or both — rent reporting to credit bureaus is a relatively simple investment of your time and resources that will have a major payoff for both you and your tenants.
Author Bio: About RentTrack
As a pioneer in the rent reporting industry, RentTrack was the first rent reporting agency to build relationships with all three major credit bureaus. RentTrack is paving the way to make rent reporting the norm on every tenant's credit history—empowering them to make their financial goals a reality.
In addition, RentTrack has partnered directly with top property management software providers to offer seamless integrations. RentTrack believes strongly in protecting customers' data, demonstrating a commitment to rigorous compliance, as well as industry-leading security measures.
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