Rent it Right
Rent it Right
Q: I've heard that landlords are starting to report on-time rent payments to credit reporting agencies, who will use this information in their credit reports and FICO scores. Is this true? Is it a good thing for tenants? --Amelia B.
A: You heard right. In June 2010, Experian, one of the big three credit bureaus, announced its purchase of RentBureau, a smaller bureau that concentrates on the multifamily rental industry. RentBureau now has a program that allows participating property management companies to feed rent payment histories directly to the bureau. The information will supposedly make its way to credit reports and FICO scores.
Whether this is a good thing for tenants is debatable, however. The website page for residents states that "In the past, only negative rental payment data such as evictions and collections were reported to consumer reporting agencies." The page goes on to hype the benefits of having one's "on-time rental payments" figure into credit scores, thereby helping tenants "establish or rebuild (their) credit" and "qualify for what (they) deserve."
RentBureau also describes receiving "updated rental payment data" on a daily basis. Readers may conclude that this program is meant to right the wrongs of past practices by transmitting only helpful information.
The refrain on the tenant screener's page, however, carries quite a different tune. RentBureau's pitch is that by accessing the "comprehensive positive and negative" data supplied by property managers, the people who screen applicants will reduce the risk that they will admit tenants who will later skip out, require an eviction, and cause bad debt write-offs.
For the property management companies themselves, the bureau notes the continuing need to "identify risky residents and accept more good residents."
In its zeal to sell this product, RentBureau floats the following non-sequitur: "Allow residents to establish or rebuild credit ... Contribute both positive and negative rental payment data to enable your residents to qualify for other credit products."
How, may I ask, can the contribution of negative rental history help establish or rebuild credit?
RentBureau's network of satisfied customers doesn't stop at property-management companies and applicant screeners. Collection companies, who are urged to contribute their rental collection data to the bureau, will in turn have access to up-to-the-minute data on renters.
When collectors receive "the most up-to-date identification and contact information on (their) accounts," they'll have an easier time dunning those debtors. And RentBureau promises not just contact information, but a real hammer to pay up. A benefit of participating in the program, writes RentBureau, is "Better leverage ... Applicants will be prevented from getting a new lease before satisfying their debt obligations to you." Wow!
Before the appearance of this real-time ability to report on late or missed rent payments, landlords had to assess their applicants' rent-paying histories by talking to prior landlords, looking for eviction lawsuits, and ordering background reports, which sometimes would pick up on bad debt.
Some specialized screening services also purport to gather information on "skips" (those who leave with unpaid rent). And landlords who take their tenants to court over unpaid rent, and obtain a judgment, can and often do report these judgments to credit reporting agencies directly.
So, you might ask, what's the problem with having more granular information available more quickly? First, keep in mind that tenants in practically every state have remedies when their landlords fail to make necessary repairs or to keep premises fit and habitable: They can withhold rent, or repair and deduct the cost from that month's rent.
Each remedy results in less or no rent being paid -- and this appears to be what will be reported, immediately, regardless of the legitimacy (or not) of the tenant's use of the remedy.
If the tenant has improperly used the remedy, the landlord can evict on the basis of nonpayment, and that event will be properly available to future landlords. But if the tenant is in the right, what guarantee is there that the report will be taken off the tenant's record?
RentBureau acknowledges this pressure, noting that reporting real-time late or skipped payments will "Encourage on-time payments ... Report your residents' rental histories to create a meaningful credit incentive for them to pay on-time." Could this make tenants think twice about exercising their rights, even when the law is on their side?
A second issue with this system is that it will not reach the many tenants who do not rent from large landlords or owners using property management companies. Small landlords who run their own shops are not likely to have the sophisticated computer systems that are needed to "push" the data directly to the bureau.
What's Your Home Worth?
Mortgage Choice Act passes House