Want an easy way to improve your credit score? Talk to your landlord.
The credit scores of many Americans could get an immediate boost of as much as 40 points if their rental payments were added to their credit histories, according to a pilot program run by Goldman Sachs, which gave a first look to USA TODAY.
The pilot’s results highlight one way to help millions of lower income and younger renters who have low scores or no scores at all and are denied loans or qualify for unfavorable terms.
The biggest obstacle: Getting landlords to sign up. Right now, renters have roundabout ways to add the data themselves, but it often costs money.
“One of the keys here is to make rent reporting as seamless and easy as possible for property managers,” said John Olson, Community Reinvestment Act officer for Goldman Sachs Bank USA. “It’s an opportunity for landlords to show that the do care and want their residents to thrive.”
Rent boosts credit scores
To prove the benefit of rent reporting, Goldman Sachs partnered with the nonprofit Credit Builders Alliance and tapped a Salt Lake City developer of an affordable housing property that the bank invested in. Thirty-two residents at Giv Development’s property signed up to have their rental history transmitted to their credit reports last year.
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The results were encouraging, outperforming previous pilots.
The average score of the participants increased by 42 points, going from a credit score of 616 to 658, on the cusp of being considered a prime borrower. Prior pilots that CBA worked on showed a 23-point average increase among renters.
The impact was also immediate. Often, other strategies to improve your credit score take many months.
“The nice thing about rent reporting is that property managers can report up to 24 months of rental history,” said Sarah Chenven, chief operating and strategy officer at CBA. “So, many folks were able to get that historical data and get that big boost quickly.”
Credit score benefits
What does a 40-point increase mean?
For some, it means having a credit score for the first time and a starting place to build a history, so they can qualify for credit cards and other loans. For others who had lower scores, the interest rate on their loans may be lower, providing a more affordable payment.
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Your credit history also affects whether you must pay a security deposit to set up utilities or a cell phone account. Depending on the state, your credit also plays a role in setting your auto insurance premiums. And, of course, landlords check credit reports when approving potential tenants or renewing existing ones.
“We had residents that did everything right, paying rent on time for years and were very mindful about how they managed their money,” said Chris Parker, executive director of Giv Development. “They were the epitome of good credit risks. But that’s not what their credit reports were saying about them.”
Win-win for everyone
Only 17% of property managers report rent to the three major credit bureaus, even though nearly two-thirds are aware of the possible benefits to them, according to a TransUnion study released Wednesday.
Almost three-quarters of renters surveyed by TransUnion said they would be more likely to make their payments on time, while two-thirds said they would choose the apartment that offered rent reporting over a similar one that didn’t. More than half would like to have their rent reported.
“It’s an amenity that could be a competitor differentiator,” said Maitri Johnson, vice president of multifamily at TransUnion. The credit bureau offers a complimentary service to landlords for rent reporting.
“There is heavy lifting in the beginning, but after that, it’s very easy,” Johnson said.
In the meantime, renters can take matters in their own hands if they want their rent to show in their credit files. There are a handful rent reporting services that can facilitate the process, but often for a fee. But if you’re about to take out a big loan, it might be worth the cost.
“If your job requires a car and you need a car loan,” Parker says, “it may be difference between a $500 versus a $300 car payment.”