The National Consumer Law Center (NCLC) issued a short paper, “Even the Catch-22s Come with Catch-22s: Potential Harms and Drawbacks of Rent Reporting,” detailing how rent reporting can carry significant risks for renters, especially renters of color. The paper suggests that rent reporting runs the risk of helping better-off renters at the cost of placing others at risk of homelessness. Rent payment data have been promoted as a form of alternative data to help renters who are either “credit invisible” or who have poor credit histories.
NCLC states that rent reporting should be limited to positive payment information only. Programs that report negative or “full file” information will harm vulnerable households because landlords use credit reports and scores as part of tenant screening reports. Many landlords will not rent to a household with a record of a late rent payment or will require a very large security deposit from such a household.
When HUD’s Office of Public and Indian Housing (PIH) established Asset Building as one of four cohorts in its so-called Moving to Work Demonstration Expansion (see Memo, 5/2), one of the options made available to the 18 public housing agencies participating in the Asset Building cohort was Credit Building. NLIHC urged PIH to limit this option to positive payment (see Memo, 5/16); however, PIH chose to use “full file” reporting without any guardrails to account for rent payments that were only slightly late or only $500 short.
NCLC cautions that even reporting positive payment history alone could carry some risks. If there is a month for which a rental payment is not recorded or that records a lower amount than the “scheduled payment,” a landlord might make a negative assumption that the tenant failed to pay rent that month.
Rent payment reporting to credit bureaus should be carried out only with a household’s active permission – that is, it should be opt-in only, rather than opt-out or mandatory. In general, consumers should always have control over whether their data are shared.
When conducted correctly, rent reporting can be a relatively helpful practice. Pilot studies found that rent reporting increased credit scores from between 10 to 23 points (and one study found that such reporting increased scores by 60 points). However, aside from the study finding the 60-point increase, rent reporting seems to result in relatively limited increases and might not be helpful unless households have credit scores close to cut-off points for credit score tiers (such as scores that are on the verge of subprime levels).
Read the NCLC paper at: https://bit.ly/3DBjSnh