Rent Payment History on Your Credit Report? What Tenants Need to Know
New credit reporting practice tracks rent delinquencies and non-payment of rent.
Credit scores for tenants that have regularly paid rent on time might improve under new credit-reporting practices announced by Experian (one of the big three credit reporting agencies). But all tenants need to be aware of how these new policies could impact them when it comes to late payment or non-payment of rent -- especially tenants who have withheld rent payment for justifiable reasons.
In June 2010, Experian, one of the big three credit reporting agencies, announced its purchase of RentBureau, a specialty credit reporting agency that concentrates on the multifamily rental industry. RentBureau recently initiated a program that allows participating property management companies to immediately feed positive and negative rent payment information directly to the agency. The information will supposedly make its way to credit reports and FICO scores. Whether this is a boon to tenants, as asserted by RentBureau, is debatable, as we'll discuss here. (To learn more about your credit report, check out Nolo's article Credit Report Basics.)
RentBureau's Pitch to Tenants
A careful look at RentBureau's website (www.experian.com/rentbureau/renter-credit.html) reveals some potential red flags for renters, though you'd hardly know it at first glance. RentBureau's site strongly suggests that only positive rental histories will be reported. ("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." The only suggestion that anything other than helpful information will be transmitted comes at the end, where RentBureau describes receiving "updated rental payment data" on a daily basis. A reader might conclude that this program is meant to right the wrongs of past practices, by transmitting only helpful information.
RentBureau's Pitch to Tenant Screeners and Property Managers
The refrain on RentBureau's tenant screener's page (www.experian.com/rentbureau/resident-data.html), however, carries quite a different tune. RentBureau's line is that by accessing the "comprehensive positive and negative" (emphasis added) 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 agency notes the continuing need to "identify risky residents and accept more good residents."
Why RentBureau Could Appeal to Collection Agencies
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 agency, will in turn have access to current data on renters. When collectors receive "the most up-to-date identification and contact information on [their] accounts," they'll have an easier time finding and collecting from those debtors. And RentBureau promises not just contact information, but a real hammer that will force tenants to pay up. A benefit of participating in the program, writes RentBureau, is that the collection agency will have "Better leverage -- Applicants will be prevented from getting a new lease before satisfying their debt obligations to you" (emphasis added).
Tried and True Methods for Checking Rent Payment Habits
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 and court judgments. (Nolo's article How to Screen and Select Tenants FAQ provides more details on landlords' options for screening tenants.) Some specialized tenant screening services also strive to gather information on "skips" -- people 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.
Problems for Both Landlords and Tenants?
So, what's the problem with having more granular information available more quickly? First, in practically every state it will jeopardize the rights of tenants to utilize certain remedies when their landlords fail to make necessary repairs or to keep premises fit and habitable -- namely, to withhold rent, or repair and deduct the cost from that month's rent. What's to stop the landlord from reporting the nonpayment immediately, regardless of the legitimacy (or not) of the tenant's use of the repair-and-deduct remedy? If the tenant has improperly used the remedy, the landlord can evict on the basis of nonpayment, and a record of that event will be properly available to future landlords. But if the tenant is in the right, RentBureau offers no apparent guarantee that the report will be taken off the tenant's record. In fact, RentBureau as much as acknowledges the effect of instant reporting on tenants' exercise of their rights, 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." The none-too-subtle message: Tenants will think twice about exercising their rights, even when the law is on their side. (Learn more about getting your landlord to take action on necessary fixes in Nolo's article Renters' Rights to Minor Repairs.)
A second issue with RentBureau's system is that it will not reach the many tenants who do not rent from larger-volume landlords or owners who use property management companies. Small landlords who run their own shop are not likely to have the sophisticated computer systems needed to push the data directly to the agency. These tenants, many of whom are on-time payers, will not enjoy the benefit of having their rental history boost their credit reports or FICO scores. And, conversely, renters from small landlords who do frequently pay rent late or skip will fly under the radar and get a credit report and score that has missed their bad behavior, thereby misleading those (including landlords) who rely on the report or score.
So, should any tenants be happy about RentBureau's new system? Maybe a tenant who:
- always pays the rent on time
- rents from a landlord who participates in the program
- never has the need to withhold rent due to the landlord's failure to take care of business, and
- never competes for credit or another rental against a poor-risk tenant whose bad rent-paying history never made it into RentBureau's databank.
For all the legal and practical tips you need for surviving the rental market and dealing with landlords, get Every Tenant's Legal Guide by Janet Portman and Marcia Stewart (Nolo).