The Power of Rent Reporting
As Americans plan for their future, much of their potential may very well depend on their past. A person's credit history is no longer just used by creditors to determine if a potential borrower will likely repay. A prospective employer may use a credit report as part of its background check. Some insurers price their products in part based on credit histories. The growing importance of credit is why Prosperity Now sees good credit as a true asset, one that can lead to better employment opportunities and favorable terms on home and business loans.
Credit building is a real asset-building strategy. It makes assets such as a home, small business or college education more affordable and increases families' access to high-quality lending products and, therefore, less susceptible to predatory loans. Prosperity Now is always looking at new ways to enhance how families can secure their financial futures.
More than one-third of Americans rent their homes, a ratio that has increased since the start of the financial crisis. Although homeownership affordability improved somewhat in the years following the crisis, new data indicate ownership costs in many markets are rising at a fast clip. While the jury is still out on the impact of new federal lending rules on access to credit, rising mortgage rates and a weak job market do negatively affect potential new buyers. A loan applicant's credit history could be the difference between an affordable loan and no loan at all. Adverse credit decisions may force a family to put off buying a house, starting a business or sending a family member to college, three of the best ways to improve future earnings and wealth.
Working with Credit Builders Alliance (CBA) to expand on its The Power of Rent Reporting pilot is a natural fit for Prosperity Now. This pilot, supported by the Citi Foundation, offers low- and moderate-income families the opportunity to turn their biggest expense, rent, into a positive credit-building tool. CBA has partnered with eight housing providers as well as Experian and WilliamPaid to report on-time rental payments by residents who have chosen to participate. Prosperity Now is excited to help build on this work.
Monthly reporting of on-time rental payments provides renters with the opportunity to establish a positive tradeline on their credit report to help initiate or improve credit. We're looking at how to expand the pilot to residents in a variety of housing programs, including federally assisted housing. A renter who pays even a small amount out of pocket would have the option to have their on-time rental payments reported. Such an outlet can offer a family in public housing, for example, the chance to establish a credit history or start to improve it through payments it is already making.
CBA and Prosperity Now will work with housing organizations, funders and others to expand this idea to a broad range of housing providers. Significantly, we will also evaluate the impact of rent reporting on participating tenants' credit scores as well as its impact on on-time rent payment rates. Longer-term research could examine other trends related to access to credit, housing and employment.
This is an exciting project. Credit has become so intertwined with opportunity that policymakers and advocates have an obligation to examine ways to integrate it with the financial relationships Americans already have. Prosperity Now welcomes the chance to add rent reporting to its asset-building toolkit.