December 2, 2016

Rent Reporting for Financial Inclusion

Written by Sarah Chenven

Pen and calculator

This article originally appeared on CFED. Reposted with permission.

Close to 40% of U.S. households live in rental housing, and that percentage is even higher for families at the lower end of the income spectrum. Many of those low-income renters are among the 100 million U.S. consumers with no, thin or subprime credit and who lack opportunities to establish or build credit. Historically, only homeowners have been able to build positive credit histories when make housing payments on time. And this matters. A good credit score can save a person tens of thousands of dollars in interest and fees over the course of a lifetime and it can make the difference in access — or lack thereof — to safe housing, employment and asset-building opportunities like starting a small business and owning a home.

Credit reports and credit scores that do not recognize on-time rental payments as creditworthy behavior present an incomplete and negatively skewed assessment of the credit risk many renters pose, particularly low- and very-low income residents living in public housing and striving to successfully join the financial mainstream.

Fortunately, there is a now a proven and cost-effective way for these renters to benefit from the same credit building opportunities afforded to homeowners through the inclusion of on-time rent payments as valid trade lines on traditional consumer credit reports (view the results of Credit Builders Alliance’s 2012-2014 Power of Rent Reporting Pilot). Rent reporting provides them with the chance to build credit without taking on additional debt or incurring the burden of an additional monthly expense. And now, progressive public housing authorities across the country like Home Forward (HF) in Portland, Oregon (formerly the Housing Authority of Portland), who have long recognized the importance of empowering residents to move toward economic independence, are naturally looking to implement rent reporting programs.

In April 2015, Credit Builders Alliance (CBA) received a generous grant of $40,000 from the Meyer Memorial Trust to work with three entities: Home Forward, to furnish resident rental data; Innovative Changes (a local nonprofit), to provide credit education; and CFED, to help assess resident credit and other outcomes. The primary objective was to implement a responsible rental payment reporting initiative. CBA considers rent reporting (as it does traditional loan data reporting) to be a responsible financial capability strategy when combined with credit education to help establish and/or improve participant credit profiles.

This initiative was piloted at one of Home Forward’s Hope 6 properties — Stephens Creek Crossing — for a group of low-income residents participating in its Family Self-Sufficiency program, GOALS (Greater Opportunities to Advance, Learn and Succeed), which is a natural fit given the program’s purpose. To date, Home Forward has successfully enrolled 67 residents, 28 of whom have now had their rents reported for over three months. Once the benefits of rent reporting spread by word of mouth across the property, Home Forward expects to see even more residents enroll.

To leverage the rent reporting as a financial capability strategy, Innovative Changes was contracted to provide credit education to enrolled residents. Innovative Changes designed a custom, four-part credit workshop series that covered the importance of having a good credit history, how building credit through rent reporting can help households achieve and sustain short- and long-term goals, how to dispute errors on credit reports, how to negotiate with creditors to settle debts and best practices in monitoring and leveraging improved credit over time to achieve goals. In total, 62 residents participated in the various workshops, and pre- and post-survey results revealed that participants were extremely engaged and increased both their knowledge and skills.

CBA also contracted with CFED to help assess credit and other program outcomes of the initiative. With input from CFED, CBA, Home Forward and Innovative Changes decided to track not only credit score changes and debt reduction levels, but also implementation lessons learned. CFED conducted interviews with residents participating in the pilot, as well as Home Forward and Innovative Changes staff, about their respective experiences with the program. In addition to the pre- and post-surveys, these interviews will help inform future iterations of the pilot with respect to outreach and marketing, program design and overall program success.

The final report on this initiative will be formally presented at CFED’s Assets Learning Conference in September 2016 — join us there to hear the details! The preliminary results look promising. Here’s what we know so far:

  • Rent reporting is seen by renters as a great opportunity for credit building. 100% of residents who participated in the final workshop stated that they were likely or very likely to consider their credit when making future financial decisions.
  • Rent reporting offers a significant credit-building opportunity to residents living in public housing.
  • Rent reporting is a viable financial capability strategy for affordable housing providers seeking to help their residents achieve financial stability. According to Rachell Hall, Financial Capability Coordinator at Innovative Changes, “Rent reporting needs to be coupled with financial education – [it is] more impactful when you’re more informed.”

CBA, Home Forward, Innovative Changes and CFED expect this pilot to serve as a model for other public housing authorities hoping to directly report rental payments and partner with local nonprofit experts to integrate credit education as a powerful credit building and financial capability strategy.

Sarah Chenven is Deputy Director of Credit Builders Alliance.