If Overdue Rent Payments Can Harm Your Credit Score, Shouldn’t On-Time Rent Payments Help?

Imagine being divorced, raising two kids, and feeling desperate to move to a larger apartment. Although you have paid your rent in full and on time for five steady years, you learn you have not built the credit needed to qualify on apartment rental applications. You are stuck.

For many Americans, rent is the largest expense they pay. While reporting overdue rental payments is incorporated into credit reports, the positive reporting of rent payments is not. Bad or invisible credit keeps individuals out of the mainstream financial system, limiting their abilities to build credit. It is a considerable obstacle to those seeking housing. Even if an individual does not want to borrow money to purchase a home, many apartment buildings require a tenant’s financial screening to rent an apartment and may require more for a security deposit in cases of thin credit.

The Credit Builders Alliance (CBA) is working to correct this imbalance by working with the credit reporting system to expand positive rent reporting, the reporting of rental payments to one or more of the credit bureaus, as an opportunity for renters who have low incomes to establish or improve their credit. Engage talked with CBA’s CEO, Dara Duguay, to learn more about growing bipartisan support for positive rent reporting initiatives.

CBA is a D.C.-based national membership network created to serve as a bridge between the nonprofit sector and the credit industry to help millions of individuals with poor or no credit participate in the mainstream financial system by building credit.

Engage: We often hear about the barriers to homeownership for working families. How does rent payment reporting create a practical pathway to economic opportunity for those who might otherwise remain financially excluded?

Duguay: Positive rent reporting, the monthly reporting of on-time rent payments to the credit bureaus, gives renters who have no or low credit scores a proven pathway to build credit. Credit scores can be the primary barrier to qualifying for a mortgage. Giving working families a chance to have their rent reported offers a safe and affordable way to build credit. For example, after the D.C. Housing Authority piloted rent reporting to residents, 10 have been able to purchase homes to date. It allows renters to get “credit” for something they’re already doing — paying their rent on time — without adding any debt.

Engage: Homeowners have long built credit through mortgage payments, while renters haven’t received the same benefit. How does addressing this imbalance fit into a broader vision of financial fairness?

Duguay: Rent reporting gives renters the same opportunity homeowners have by paying their largest monthly bill on time. Negative information concerning overdue rental payments is already incorporated into credit reports and scores through actions including accounts sent to collections and evictions, so positive-only rent reporting balances out the information available on the renter side and increases financial fairness.

Engage: We’ve seen growing bipartisan interest in credit-building initiatives. What aspects of rent payment reporting tend to resonate across the political spectrum?

Duguay: Fortunately, increasing opportunity and housing mobility through rent reporting is something everyone can support, regardless of their politics. In our advocacy on Capitol Hill, we have found that there has been considerable bipartisan interest in rent reporting, including bipartisan and bicameral expressions of support for HUD to increase its activity in stimulating rent reporting by affordable housing providers. It seems that, in addition to the obvious benefit of helping residents move to private housing, either rental or purchased, members of Congress appreciate greatly that credit building can help some Americans start their own business via a small business loan and purchase larger items like cars. Members and their staffs see the economic engine that could develop if there were fewer “credit invisibles.”

Due to CBA’s pioneering and continued expertise in rent reporting, we get to speak to policymakers on the national, state, and local levels who want to know more about positive rent reporting. Credit impacts all parts of a person’s life, including housing, transportation, employment, banking, insurance, and utilities. While it is not a silver bullet to solve all credit and housing issues, it does create an opportunity for those who are excluded because of no credit to create a pathway forward.

In addition to improving financial opportunities, rent reporting can also impact housing mobility. When one family can move out of affordable housing into private, market-rate housing, this opens the door for another family who needs that affordable unit. This is a win-win situation when the stock of available affordable housing is low.

Engage: Looking ahead, how do you envision rent reporting and credit building evolving, particularly for communities that have historically been excluded from the financial mainstream?

Duguay: In historically excluded communities, there is a lack of affordable, quality credit products and a higher concentration of predatory financial services. Those products do not report on-time credit payments and lead to cycles of high-interest debt. Positive rent reporting is an accessible credit-building tool that should continue to grow in popularity as an alternative to predatory options.

With increased funding, we plan to expand our rent-reporting implementation support. When people find out about rent reporting, they want to take it to scale. We want that as well, but the reality is that housing providers need training and technical assistance to implement rent-reporting programs. Our vision is that a combination of government, foundation, philanthropist, and financial institutions’ increased support will allow CBA to use our 12 years of rent-reporting experience to make that happen. With that investment, CBA can help providers offer this to more renters across the country, thereby including more communities in the financial mainstream.

The Equal Credit Opportunity Act was signed into law by President Gerald Ford in 1974. The ECOA prohibits creditors from discriminating on the basis of race, color, religion, national origin, sex, marital status, or age.

It was authored by Representative Margaret Heckler (R-MA), a member of the Banking and Currency Committee, to give women the right to seek credit in their own names for the first time in American history.