Although it may sound like a good idea on the surface, reporting rent payments to credit bureaus like Equifax, Experian and TransUnion could have serious unintended consequences. Done wrong, it could thrust people already struggling to pay rent and make ends meet into homelessness.
Unfortunately, in the last few years, there’s been an increasing push for rent reporting to address the supposedly terrible issue of the 45 million Americans who lack a credit history or have too little history to generate a credit score. Just last month, the National Apartment Association touted its commitment to promoting the reporting of positive rent payments to credit bureaus as its contribution to the Biden administration’s call to action to housing providers to help renters.
In addition, the practice has been embraced by industry leaders, policymakers and some nonprofits as a way to address the stark racial disparities in both credit scores and homeownership. They see rent reporting as a form of alternative data to give renters, who are disproportionately Black and Hispanic/Latino, the benefit of on-time housing payments, just like homeowners who are more likely to be white.
But when this reporting includes negative information, such as rent payments that are 30 days or even just a few days late (so-called “full-file” reporting), the consequences can be devastating. This is because most landlords and property managers use credit reports and scores as part of their tenant screening process, even though they are not reliable predictors of tenant performance. Many will not rent to a household with any record of a late rent payment, so families whose credit reports indicate past struggles to make rent payments could have their applications rejected or be asked to pay unaffordable security deposits.
The COVID-19 pandemic has brought this issue into stark relief. During the pandemic between 6 million and 13 million households were behind in rent. But in many cases, they were able to stay in their homes due to federal, state and local-level eviction moratoriums and unprecedented federal emergency rental assistance. And rents have skyrocketed in the past year, with more tenants increasingly facing amounts they can barely afford. With full-file rent reporting, millions of renters who missed rent payments during the pandemic would have negative information on their credit reports for up to seven years, making it even harder for them to find safe, affordable places to call home.
Rent payment reporting is a risky idea with huge potential downsides; if it is even to occur, it must be limited to positive payment information only. We are glad the National Apartment Association’s announcement focuses on positive rent payments and hope that its members’ efforts are limited to positive reporting. Negative rent payment information makes housing even more inaccessible in an already brutal housing market. That’s just too much of a downside to justify any supposed benefit from full-file reporting. Even reporting only positive payment history carries some risks as landlords may assume that months in which no rental payments are not recorded are missed payments.
In addition, consumers should be able to choose whether their rent payment data are submitted to the credit bureaus. For over half a century, consumers have had no control as our data are harvested, used and misused by credit bureaus. Not only is consumer choice the right thing to do from a privacy perspective, but requiring the consumers’ permission also avoids the inclusion of harmful negative information that will hurt their rental housing prospects. Plus, it’s often the tenant who is required to pay a monthly fee for rent payment reporting — so they should have a choice of whether to accept the fee.
The credit bureaus are data hoarders, and rent payment data is a rich new trove of information for them. They are dressing up efforts to pull that data in the language of racial justice and equity at the expense of the lowest-income and most marginalized renters who themselves are more often people of color. Don’t be fooled.
Indeed, there’s a better option than reporting rent payments to the credit bureaus. Rent payment information can be gleaned from bank account transaction information. This type of data access, usually through companies called data aggregators, requires the consumer to give permission. It doesn’t cost the consumer anything. And when data about rent payments are missing from bank account histories, their absence cannot be assumed to be nonpayment, since the rent could have been paid in cash or money orders.
Finally, and most importantly, no amount of additional data is going to close the racial credit scoring gaps unless the root causes of those disparities are addressed. Credit reporting changes aren’t nearly enough to make a dent in the deep and structural disparities in wealth and opportunity built up through centuries of racist policies. Any data that rely on financial information will still reflect racial disparities given the unequal economic positions of households of color and white households.
Chi Chi Wu is staff attorney at the National Consumer Law Center and Stacey Tutt is senior staff attorney at the National Housing Law Project. NCLC and NHLP were both created during the War on Poverty to support legal aid organizations and continue to work for justice and economic security for low-income people nationwide.