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Even the Catch-22s Come with Catch-22s:
Potential Harms and Drawbacks
of Rent Reporting
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October 2022
Rent payment data has been aggressively promoted as a form of alternative data that will help
consumers who are either credit invisible or have poor credit histories. In the wake of the racial
justice movement of the past few years, rent reporting has been embraced by industry,
policymakers, and some nonprofits as one of the primary ways to help Black and Latinx
consumers, given the stark racial disparities in credit scores and credit invisibility.
Rent reporting has an intuitive appeal, supported by initially appealing
arguments such as, “Why should homeowners get the benefit of
reporting their housing payments to credit bureaus but not renters?”,
and, “Why is negative information about missed rent reported but not
positive information?” (Note that the latter argument is not quite
accurate as only a limited set of negative rental information – mostly
debts referred to collection agencies by housing providers – is sent to
the credit bureaus.)
However, rent reporting actually carries huge risks for renters,
especially the most vulnerable families who struggle with housing
costs. These at-risk households are also disproportionately Black and
Latinx. Rent reporting risks helping some better-off credit invisible
consumers at the cost of literally making other renters homeless.
For mortgage lending, there are better alternatives to capture rent payment data, such as
programs already developed by Fannie Mae and Freddie Mac that use bank account
transaction data. And for those not ready (or not financially able to) purchase a home, or who
already have a good credit history, cash-strapped renters should not be forced to pay for rent
reporting to the credit bureaus as a service.
To the extent that advocates and policymakers want to pursue rent reporting programs, they
should follow certain critical guidelines and beware of the pitfalls discussed below.
Positive-Only Reporting is Key
The most important consideration is that rent reporting should be limited to positive payment
information only. Programs that report negative or “full file” information will most certainly harm
vulnerable, struggling families. This is because landlords use credit reports and scores, either
independently or bundled with criminal history and eviction records as part of tenant screening
reports. Many landlords will not rent to a consumer with any record of a late rent payment, or will
charge them a prohibitively high security deposit.
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From a reply to one of the author’s Tweets
Rent reporting
risks helping
some better-off
credit invisible
consumers at the
cost of literally
making other
renters homeless.
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Unfortunately, many current rent reporting programs do involve reporting of negative
information. In California, a new law requiring subsidized housing providers to offer rent
reporting has been interpreted to require full-file reporting, including negative information.
This type of reporting can have potentially devastating consequences, as illustrated by the
following example that a consumer lawyer providing pro bono services at a homeless shelter
sent to NCLC:
I was shocked to find out that most of the problems had to do with credit reporting – right
down my alley. Of the 10 or so folks I’ve met with so far, at least 6 were living in the
shelter solely because a rent-related credit reporting issue had shut them out of the
housing market. These are folks with enough income to pay market, non-subsidized
rent, but were nevertheless forced to move their families into a homeless shelter simply
because their credit history disqualified them from renting. And, it’s not a credit score
problem. Folks with decent credit scores were automatically disqualified because of a
past rent delinquency (even a single 30-day late). … I’m keenly aware of the outsized
role credit reporting can play in keeping folks in difficult financial situations in general,
but I was shocked to see a direct connection to something as extreme as homelessness.
Email from Kenneth Riemer to Chi Chi Wu. April 7, 2022, also discussed in American Banker
Lenders' use of rent data in loan decisions helps homebuyers, but dangers lurk.
The pandemic has heightened the potential harm of rent reporting if done incorrectly. At various
times during the past two years, between 6 million and 13 million households have been behind
in rent but likely were able to stay in their homes due to various eviction moratoriums. These
households are disproportionately renters of color; for example, in September 2020, about 1 in 4
Black and Asian renters and 1 in 5 Latinx renters said they were not caught up on rent, compared
to just 1 in 9 white renters. The Urban Institute has found even starker statistics, i.e., that 45% of
Black renters missed or were late on at least one rent payment during a one-year period.
With full-file rent reporting, these millions of tenants who missed rent payments would have
negative information on their credit reports, which could literally keep them from obtaining
shelter for their families. While efforts to address credit invisibility and closing the racial
homeownership gap are certainly important, helping some consumers obtain a mortgage should
not be at the expense of risking homelessness for vulnerable tenants.
Even reporting only positive payment history could carry some risks. If there are months in
which a rental payment is not recorded, or shows a lower amount than the “scheduled
payment,” a landlord might make a negative assumption that the tenant failed to pay the rent
that month. This is one reason why using bank account cashflow information is preferable to
including the data in credit bureau files – the fact that rent is missing from bank account
transactions could be attributable to a cash or money order payment, blunting negative
inferences by lenders.
One solution to this conundrum would be to ban the use of credit reports and scores in tenant
screening, which was proposed but not passed in at least two state (Massachusetts and
California). But until there is such a ban nationwide, the reporting of negative rent payment data
will always create the risk of making vulnerable tenants homeless.
Consumer Control
Rent payment reporting to the credit bureaus should always be with the consumer’s active
permission – it should be opt-in only, not opt-out or mandatory. As a basic principle, consumers
should always have control over whether their data is shared.
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For over half a century, consumers have had no control as our data is harvested, used, and
misused by the Big Three credit bureaus, i.e., Equifax, Experian, and TransUnion. The credit
reporting system is a broken oligopoly in which there are rampant abuses and little
accountability due to lack of competition, where consumers have no choice but to be beholden
to the credit bureaus.
This needs to change. Consumers should have a choice as to whether their rent payments are
submitted to the credit bureaus. Not only is it the right thing to do with respect to privacy and
consumer rights, but requiring the consumers’ active permission also avoids inclusion of harmful
negative information that will hurt their rental housing prospects.
This is a second reason why using bank account transaction information is preferable to
including the data in credit bureau files – currently, consumers must give active permission to
allow access to their bank account data.
Dollars and Sense
Feeding rent data to the credit bureaus can cost money. While some third-party platforms do not
charge a fee, others charge significant upfront or monthly fees. An important question is: Who
pays for the rent reporting – the landlord or the tenant? Many tenants are already burdened with
excessive and unnecessary fees, such as fees for insurance that only benefits the landlord or
billing convenience fees. The costs of rent reporting could add fees from $2 to a whopping $49
per “lease period,” with many companies charging around $7 to $9 per month.
If a renter is not interested in homeownership or credit building (or if those goals are secondary
to simply securing and maintaining housing), a renter should not be forced to pay over $100 per
year for an unnecessary service, especially given how many renters are struggling with high
housing costs already. Rent reporting is also not useful for the many renters who already have a
good credit score. Even worse, renters who have struggled to pay on time should not be forced
to pay to supply negative information into their credit reports, where it could prevent them from
obtaining new housing.
For mortgage lending, this is a third reason why using bank account cashflow information is
preferable to including the data in credit bureau files – it does not cost the consumer a recurring
monthly fee.
Feeding the Credit Bureau Oligopoly
The Big Three credit bureaus have promoted the idea of alternative data such as rent reporting
as a form of “credit inclusion.” In a May 2021 Congressional hearing, the president of
TransUnion Consumer Interactive touted the formation of that company’s Racial Equity Task
Force and emphasized how “alternative data is critical for credit inclusion.”
The credit bureaus are data hoarders, and rent payment data is a new trove of additional
information for them. They are dressing up efforts to tap that data in the language of racial
justice and equity, at the expense of vulnerable renters who themselves are more often people
of color.
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Limited Efficacy
Done right, rent reporting can be somewhat helpful. Pilot studies have found that rent reporting
can increase credit scores, ranging from 10 points to 23 points or even 60 points. With the
exception of the study showing 60 points, these are still relatively limited increases and might
not be all that helpful unless the consumer has a credit score that is close to a cutoff from a
credit scoring tier (i.e., on the cusp of subprime (under 620) to near-prime (over 620)). Even the
study showing 60 point increases only had 12% of consumers shifting to a higher score tier with
rent reporting.
Indeed, a November 2021 Government Accountability Office (GAO) study noted that while
alternative data could “improve or generate scores for [credit invisible or low scoring]
consumers, it is unclear whether the increases would be sufficient to qualify many additional
consumers for lower-cost mortgages.” Furthermore, the GAO also noted that nearly half (48
percent) of unscorable consumers were under 24 or over 65 years old, which the GAO
characterized as “age groups less likely than most to be seeking mortgage credit.”
In general, alternative data such as rent payments will not eliminate racial disparities in credit
scores and is not a panacea for credit inequities. Any data that relies on financial information will
still reflect racial disparities given the unequal economic positions of households of color and
white households. As a FICO spokesperson noted, “It’s important to note that credit scores
didn’t create some of the social economic disparities. They simply reflect the social economic
disparities that are out there. The conversation should focus on addressing the root cause of
these differences.”
Of course, FICO doesn’t address the problem that credit scores do not simply serve as
measurement tools or research indicators, but are used as gatekeeping criteria. But the FICO
spokesperson is right about the underlying social and economic disparities, and no amount of
additional data is going to close the racial credit scoring gaps if the root causes of those
disparities are not addressed.
For more information, contact National Consumer Law Center attorney Chi Chi Wu
