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Did you know that approx 35% of all households in America were renting their home in 2010? That number is projected to rise sharply over the next 10 years. In fact, large media companies like CNN, Fox, NBC, and Time Warner projectionists predict that as much as 75% of Americans will live in a home that they do not own by 2020. (FYI: The rationale is that many people that will need to move for professional reasons but won’t be able to sell the home they are leaving so will choose to rent it out to another family while they rent in their new location until markets regain strength.)
When you consider how much a mortgage can affect someone’s credit, it’s no wonder that “last year, Experian, one of three leading credit-reporting companies, added a section to millions of credit reports showing on-time rent payments.” (The New York Times. January 08, 2012.) The addition was so successful that Experian is now accepting reporting about problem tenants too. Things like bounced rent checks, late payments, and even “leaving before the end of a lease” will start showing up on credit reports later this year. This follows a recent trend that started with companies like CoreLogic and FICO who integrate tenant payment histories and other things that are not considered “consumer credit” into reports that are designed to help landlords consider the financial risks of leasing to applicants.
Leases will begin showing up on credit reports as installment loans. The entire balance of the lease will be reported each month (obviously decreasing with each payment). As long as all payments are made on time, the reporting actually helps tenants build their credit. Conversely, for tenants with poor payment habits, their credit will be negatively affected. And it’s about time! Until now, landlords have been left with costly court processes as the only real recourse for collecting on dead-beat tenants. And we rarely actually re-coop the losses. It’s obvious that this new reporting option can be a huge win for our industry. As communication between landlords and credit reporting companies gains strength, pulling a simple credit report will help the next landlord see the “rental history” of their applicants and make more informed decisions. Likewise, if tenants know we are reporting to credit agencies, most will make paying their rent and completing their rental obligation more of a priority. The important thing to remember is that we are the key! Credit agencies can only report what they are given. So, to make the system profitable, we must get involved.
Information is currently being captured electronically by online property management software companies (AppFolio, Buildium, and others). But never fear, Experian is working on a system that will allow independent landlords to report problem renters. Until then, most landlords who want to report will need to contact the credit agency and make manual reports. So, although the system is still in the beginning phases and will need to have some bugs worked out, it is a step in the right direction. For more information, contact Experian, CoreLogic, or search online using key words ‘Reporting Rental Payments to Credit Bureaus.’