Residential Magazine

Simple steps to boost credit could make a real impact

By Jim Davis

Renters looking to boost their credit scores are increasingly convincing property managers to report rent payments to the credit bureaus. This is occurring more often with younger generations, especially among Generation Z (those born after 1996).

One in five Gen Zers were having their on-time rent payments reported to the credit bureaus, according to a TransUnion survey released this past June. And 86% of the respondents in this age group reportedly saw their credit scores improve. The survey conducted in March 2023 included responses from roughly 150 property managers and 3,300 renters.

Gen Zers have their rent payments reported at double the rate of the population as a whole — 21% compared with 11%, according to the survey. Gen Z appears more financially aware and more focused on improving their credit than prior generations, says Maitri Johnson, TransUnion’s vice president of tenant and employment. “For example, other TransUnion research has found younger generations are more likely to use airline and hotel memberships and affiliated rewards credit cards to maximize their spending,” Johnson wrote in an email.

“Like 10 years ago, I remember us having conversations around how to expand credit to those with thin credit files by looking at their rent payments.”

– Kristin Messerli, co-founder and executive director, FirstHome IQ

Property managers are also increasingly likely to report rent payments, with nearly half of those who do having started in 2022. The most common reasons cited were to help tenants build their credit scores and to encourage residents to pay on time.

There are more financial literacy options today than there were for previous generations, says Kristin Messerli, co-founder and executive director of FirstHome IQ, a nonprofit that offers homeownership education. Gen Zers rely less on information from loan officers and more on financial education via social media, she says.

“I think we’ve moved away from trusting institutions and more toward trusting individuals,” Messerli says. “It’s not to say that they are trusting everyone they see on TikTok, but they’re capturing information and they’re getting information that otherwise wouldn’t have been available to them.”

On-time rent payments help younger and more diverse borrowers build credit faster, Messerli says. And this has become part of a national conversation. “We’ve been talking about this for many years,” she says. “Like 10 years ago, I remember us having conversations around how to expand credit to those with thin credit files by looking at their rent payments.”

In 2021, Fannie Mae and Freddie Mac each launched programs aimed at using rent payments in the mortgage approval decisionmaking process. Last year, all of the major credit bureaus (Experian, Equifax and TransUnion) started to include rent payments in credit reports and credit-score calculations.

“It’s difficult to say why it didn’t happen earlier, but the call to make it a standard practice has steadily built momentum over the past several years,” Johnson says. “I think the reason it gained traction so quickly is due to the fact that consumers and the financial services industry are both pushing for residents to get credit for their consistent on-time rent payments, along with other regular payments like utilities and telecommunications.”

Still, even those who are making gains on their credit scores face a tough road, says Jonathan Lawless, head of homeownership at Bilt Rewards, a loyalty points program. His company works with 40 major multifamily property owners in the U.S. and allows renters to earn rewards points for their rent payments, with no transaction fees, while building a path toward homeownership. Bilt offers a co-branded credit card as well.

There are 24 million renters in the U.S. between the ages of 30 to 44, which can be considered prime homebuying years. But there are only about 600,000 homes actively listed for sale at any given time, Lawless says. The lack of supply remains a major stumbling block even for those who are improving their credit scores.

“It basically means that unless you’re sort of in that top 10% of income earners or savers in the rental class, you really don’t have a shot at those limited number of listings,” says Lawless, who also points to affordability and wage growth challenges.

Renters tend to be younger, and a meaningful percentage don’t see more than a 10- to 15-point improvement in their credit scores via on-time rent payments, Lawless says. But it will turn credit invisibles — consumers with limited or no credit history — into credit visibles. And the major credit models consider the age of credit. The more seasoned the credit, the better the score, he says.

“It is very important to have that awareness and to start early,” Lawless says. “The first thing you do out of college might be to start renting an apartment and, boom, suddenly you’ve got a credit score.”

Credit-score improvement can thus pay dividends for those on the cusp of purchasing a home now. And it can also help younger consumers get on the right path so that when market conditions change in the future, they’ll be well positioned to buy.

“Let’s get them on the right journey,” Lawless says. “Let’s educate them. If they can’t find the right home now, keep building their credit so when they do find the right home, they’ve got the best possible chance.” ●


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