A rent reporting service is a type of credit building product (CBP) that reports positive payment history to credit bureaus by creating a rental tradeline on consumer reports.

Rent reporting is not the same as information in tenant screening software, which includes additional information about renter behavior in addition to payment history.

Its original purpose was to help consumers with zero credit history, also known as credit invisibles, establish a credit report. In 2012, the Credit Builder's Alliance spearheaded its widespread adoption, making rent reporting the most recent credit builder product.

Summary

What is it?

Rent reporting is a service offered by private companies either directly to renters or through property managers and landlords. It establishes a unique tradeline, or account, on consumer credit reports with the three national credit bureaus—TransUnion, Experian, & Equifax.

On-time rent payments create payment-history, which accounts for 35% of credit. The addition of this line also impacts "new credit."

It is imperative to note that rental tradelines are not installment or revolving accounts. They are a unique account type—"Rental." Unlike loans and credit cards, there is no principal or credit limit on rent so these tradelines have their own account type.

Rent reporting services include three parts:

Costs

Based on data from over 35 different rent reporting providers, the average monthly subscription cost to consumers is $6.69. Additionally, 11% of providers charge an average signup cost of $59.78.

Approximately 39% of providers also offer up to 24 months of past rent payment reporting in one-shot for an average price of $48.70.

Rewards

Out of over 35 different providers, only 2 provide rewards. One of them is cash back and the other is a points system that can be used for travel, gym membership, rent payments, or even down payment on a mortgage.

Benefit to Credit

Approximately 47% of rent reporting providers disclose credit score impact of their users. On average, consumers can expect a 19 point increase, with a minimum of 2 points and a maximum of 78 points.

Potential improvement depends heavily on the renter's starting point, with lower scores experiencing the largest improvement.

U.S. Department of Housing Findings

The U.S. department of housing performed a study that found that found an average increase of 62 points based on the following criteria.

Rent reporting has a definitively positive impact, but renters should remember that the addition of the credit line will impact their "new credit" and likely cause temporary decrease.

In fact, fluctuations in credit are a leading cause of persistent poor credit, and most credit builder programs have built-in expectation management frameworks to guide users through the process.

Providers

Our market research identified more than 35 active rent reporting service providers in the United States. They can be broken down into two categories. The first is direct-to-renter providers and the other is landlord-dependent providers.

Approximately 72% of providers are landlord-dependent, which means the renter must either report through the landlord's software or request the landlord confirm rental payments with the provider.

The other 28% of providers work directly with renters.

Do-No-Harm Model

The do-no-harm (DNH) model is a rent reporting structure in which only on-time payments are reported. Under this model, unpaid rent is simply omitted from the credit report tradeline.

While it appears DNH models are unfair to landlords, they're a win-win. Renters have incentive to pay on time because it helps build their credit, even though they are not punished for missed payments.

Landlords benefit from this added incentive, without which renters have even less incentive to pay. In other words, the DNH model is a positive reward-based system rather than a punishment-based system.

Approximately 33% of providers use a do-no-harm model, and 75% of these providers are landlord-dependent.

Importance of TransUnion, Equifax & Experian

It's imperative to note that tenant payment history is not the same as rent reporting. Tenant screening agencies existed long before rent reporting. In fact, of the 59 consumer reporting agencies, 10 of them (17.24%) are tenant screeners.

Rent reporting is the act of including rent payments in the 3 national consumer reporting agencies—TransUnion, Equifax, & Experian. These three are also referred to as "the credit bureaus" because of their dominance across all categories of lending and consumer rating.

The significance of rent inclusion on the credit bureau reports is that consumers can trust it will be a factor that almost every lender, landlord, or insurance company considers when evaluating their profile. In a word, rent reporting is centralized.

Tri-Bureau Reporting

A common setup is for rent reporting services to send information to 1 or 2 bureaus, but not all three. In these cases, renters have an imbalance across their credit reports. This dynamic can create issues because future lenders may use the bureau to which rent is not reported.

Approximately 41% of providers report to all three credit bureaus.

Rent Reporting ≠ Tenant Screening

Rent reporting is this the inclusion of rent payments on credit reports, but it's not the same as tenant screening. Tenant screening includes data from property management software and 10 credit reporting agencies focused solely on renting behavior.

Consumers should note that positive payments on rent are not the only information landlords use to approve or deny them.

Why it Exists

Rent reporting exists because it is a reliable measure of consumer trustworthiness. Rent is often the largest expense in a family unit, but there was previously no means to account for it despite the fact that mortgage payments directly impact credit reports.

Lenders and other creditors can use rental payments as a reliable metric to gauge consumer trustworthiness.

Who it Benefits

Consumer with zero credit history benefit most from rent reporting, followed by those with poor credit (<500). The core value of rent reporting the easy addition of an account to one's credit report in situations where lenders simply refuse to provide other products such as credit cards and loans.

The operating word here is easy because credit builder products such as CBLs and CBCs also accept consumer with limited or zero credit, but they require effort by the borrower.

Borrowers with good credit (roughly 700 FICO 8 or more) generally won't benefit from rent reporting because they have the ability to acquire more favorable financial products.

When to Do It

Consumers who pay rent can start rent reporting right away, as long as they can afford roughly $7/month and/or $49 for a one-shot past payments report.

The only reason to wait is if consumers plan to apply for another product such as a mortgage, credit card or personal loan because adding rent reporting can cause a temporary dip in credit. It is better to obtain the planned debt, then add rent reporting.

Where It's Available

Rent reporting is available in all 50 U.S. states.

How To Do Rent Reporting

It's important not to rush in to rent reporting. Consumers should follow specific steps to avoid unwanted consequences.

Drawbacks

The National Consumer Law Center (NCLC) published an insightful white paper about potential drawbacks to rent reporting. Below we highlight their arguments and add our own.

Opt-out models can deceive renters

Some rental management platforms have a default opt-in feature, which means the renter may agree to rent reporting without realizing it. In some cases this can be beneficial, but renters should have control.

Fees hidden in lease agreements

The average cost of signup fees + past reporting + monthly reporting is $115. If this amount is hidden in the lease agreement, renters may end up with an unexpected bill. Any renter on a tight budget is in a disadvantaged position from the start, even if the service improves their score for the future.

More harm than good for renters with strong credit

In default opt-in scenarios, renters with strong credit but experience an unexpected drop in score in profile. The drop is temporary, but it can restrict them from acquiring other debt such as loans and cards until the rebound.

Landlord Leverage

Options such as CredHub give the power to report or not report to landlords as they choose. That power can serve as additional leverage over tenants.

Additionally, landlords often charge a margin of $2 - $3, which means renters bear the cost of the service and landlords not avoid avoid the cost but profit from the service. This is not inherently bad because renters benefit from improved credit profiles, but it leaves room for abuse.

Citations

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