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Experian, a major credit bureau, announced last week that it would start including data on rent payment into a segment of their credit reports. Currently, they are going to report only positive payment history, such as continuous and on-time payment of rent; negative payment history will be included in 2012.
One person I met this weekend is an example of how including rental payment history on credit reports could help consumers. I took a cab on Saturday afternoon and, as I got in, my driver immediately waved a sheaf of papers at me.
“I just got a summons from my credit card company,” he said worriedly. I asked him what the company was going to do. “Nothing, I guess,” he responded. “I have no money; I can’t stop paying my rent. They can’t get blood out of a stone. I want to pay, so I will talk to them to see if I can negotiate to pay what I can afford.”
As we drove down Clark Street, my driver listed a litany of financial setbacks that drove him to this point: increasing cab fees, higher gas prices, and a medical emergency that rendered him unable to work for a period. “That’s what kills me,” he said. “All my life I worked to build good credit, and one bad thing happens and it’s like nothing that happened before matters.” He wanted to go back to school to get into a line of work that pays better so he could pay off his debts, but he couldn’t get student loans with his poor credit. “What am I supposed to do now?” he asked plaintively.
My cab driver isn’t alone. Our recent research found that one in five Illinoisans have credit scores below 620, a common cutoff for consideration of prime credit. In African-American communities, that figure was even more troubling: over 50 percent of residents have scores below 620. Low credit scores can have a ripple effect throughout your life by limiting access to affordable mortgages, rental housing, education, car loans, insurance, utilities, and more. Conversely, a strong credit score is an asset that can open up doors to wealth-building opportunities through buying a home with an affordable mortgage, pursuing higher education with sustainable student loans, or starting a small business with a loan that has fair terms.
Many low-wealth workers struggling with debt are faced with a choice every month between paying their rents and buying groceries or paying their credit card bills. Like the cab driver decided, paying rent is often prioritized over other bills. Including rental payment history on a credit report gives lenders a more accurate picture of how likely a borrower is to make regular payments on time. It could also help build credit for consumers with poor or little credit history—Experian estimates that one-third of the consumers in its highest-risk range will move up into the next category once the rental payment history is included.
Woodstock Institute welcomes Experian’s announcement. However, the rental payment data will be included only on a limited number of credit reports since Experian gets its rental payment data from a network of landlords that covers about 8 million renters. We encourage credit bureaus to seek out ways of including a fuller set of data on credit reports for a broader base of consumers, since an estimated 96 million renters are not seeing the benefit of on-time rental payments in their credit histories.
Additionally, representatives of FICO, which produces a widely-used credit scoring system, have said that FICO has not yet determined whether to include rental data into their system and will wait to evaluate Experian’s experience. We encourage FICO to consider including rental payment history in their credit scoring system since many lenders rely heavily on credit scores—not just credit reports—in their underwriting decisions.
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