One way we begin to eliminate the racial wealth gap in America is by helping consumers build their credit profile; especially for those who have poor credit scores or no credit scores at all.
Opening doors to credit-building opportunities can make a difference. Rent reporting – the reporting of tenants’ rental payments to the credit bureaus – is a proven credit building strategy that spurs economic mobility for low-income renters.
Fueled by years of positive rent reporting results, Credit Builders Alliance (CBA) is creating a Rent Reporting Technical Assistance Centre (RRTAC) with underwriting support from Experian. The centre aims to reduce barriers for affordable housing providers to adopt this impactful strategy and foster the industry collaboration needed to scale it.
“CBA’s Rent Reporting Technical Assistance Centre will function as a one-stop-shop to assist landlords for low-income tenants. Coupled with extensive technical assistance provided by CBA, the affordable housing providers will have a road map and guidance for adding rent reporting to their operations,” comments Dara Duguay, CEO CBA.
Unlike homeowners, renters historically have not gotten ‘credit’ on their credit reports for making their monthly housing payments. Many of these renters are also more likely to:
- have lower-income and hold less wealth than homeowners:
- renters account for nearly 60% of all U.S. households with incomes under $25,000 per year.
- be households of color:
- Black and Hispanic households are twice as likely as White households to rent.
- lack of enough credit history to generate a credit score:
- renters are seven times more likely to be credit invisible compared to homeowners.
For these households, lack of access to credit can inhibit their ability to overcome financial challenges and pursue economic mobility. Many have limited opportunities to build a credit history, which directly impacts their ability to get ahead in today’s economy. As a proven strategy for establishing and building credit, reporting rental payments offers low-income renters a safe and easy opportunity to build credit without taking on additional debt.
“At Experian, we believe everyone deserves access to fair and affordable credit,” comments Craig Boundy, CEO Experian North America. “This CBA programme is a tangible step in helping marginalised communities, and we are proud to work with them on this vital initiative. We look forward to partnering with CBA as we continue to innovate and explore new ways to improve financial inclusion for all consumers.”
Through its seminal 2012 – 2014 Power of Rent Reporting pilot, CBA found that 100% of residents who started off with no credit score became scorable at the near-prime or prime level. Additionally, on average, residents with sub-prime scores saw those scores increase by 32 points.
Fueled by these findings, policy makers in California are promoting rent reporting as a viable and powerful economic mobility strategy and one that narrows the racial wealth gap. California Senate Bill 1157 passed in 2020 and will require affordable housing providers (of a certain size) to implement rent reporting for their tenants – ultimately benefitting potentially hundreds of thousands of Californians. The RRTAC initiative will actively reach out to these landlords who must now comply with this new law.
Rent reporting is a win-win:
- Residents gain the opportunity to build credit without assuming additional debt through the establishment of a new tradeline on their traditional consumer credit report.
- Resident Service Providers gain access to a credit building “product” around which they can wrap coaching and education to provide residents with a means to measurably improve their credit profile and ultimately other financial outcomes.
- Property Managers gain a tool to offer a positive incentive for increasing on-time rent payments and a competitive advantage in recruiting new residents.