Millions of renters could get a big boost to their credit score if landlords reported their on-time rent payments, according to a new TransUnion analysis, which could help lower their borrowing costs.
The biggest hurdle, though, is getting landlords and lenders on board.
“I always wondered how it is that the single largest payment a person makes out of their bank account every single month doesn't count on their credit score,” Maitri Johnson, vice president of tenant and employment screening at TransUnion, told Yahoo Money.
Renters could raise their credit score nearly 60 points if their rental payment history was factored into their credit report, according to the credit bureau’s findings. In addition, 1 in 11 people went from having no credit score to scoring 631 on their VantageScore 3.0, making them a near prime lending risk and considered a fair score.
The findings also showed that 1 in 8 people saw their score shift from subprime — having a credit score between 300 to 600 — to near prime, allowing them to qualify for better loan terms.
“For somebody who has a zero or is at a 325, the leap you make and the access you now have to products and services, like going and getting an automobile loan, that’s at a 10% rate, not a 30% rate,” Johnson said.
While all three major credit reporting agencies will include rental history on your credit report if it is supplied, only newer versions of the FICO credit score and the less commonly used VantageScore factor those payments when calculating a score.
“Home mortgage lenders don't use Vantage score, or even a newer version of FICO in their home mortgage lending operations,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition, a big disadvantage for renters who want to make that leap to homeownership.
But lenders in other consumer credit areas — such as auto loans or credit cards — use newer credit scoring models or VantageScore, Van Tol noted, which could help renters.
“They find them to be more predictive, more inclusive, and more valuable,” Van Tol said.
The other challenge is getting the rental payment history onto your credit report in the first place. Currently, the burden is on renters to get their landlords to report their payment history or renters themselves must pay for a service to do it for them.
Companies such as RentReporters, Rental Kharma and LevelCredit offer rent-reporting services that cost anywhere from $50 to $100 to enroll in a program, plus a monthly fee of $6.95 to $14.95. Some require your bank account to report your rental payments, and they only report to TransUnion and Equifax.
“Hopefully we get more people embracing it and certainly when it's a regulation, you have no choice but to embrace it,” said Johnson
California passed a bill that took effect July 1, requiring landlords of assisted housing developments to offer their tenants rent payment reporting at a fee of no more than $10 a month. Colorado is also working on a similar bill.
“It's the right thing to do,” Johnson said, “and it has a really good impact on people who need it the most.”