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Helping residents build their own credit score: affordable housing residents are appreciative of a program that helps them boost their credit history by paying rent.

For affordable housing owners and operators, such as New Hampshire-based Affordable Housing, Education and Development Inc. (AHEAD), business is about more than signing leases and maximizing revenue--it's also about helping residents who have had financial struggles in life.

A core aspect of that mission for AHEAD, which owns and operates more than 400 affordable housing units, has been educating residents about the importance of credit and building credit history.

AHEAD's attempts to garner interest in financial education were stagnant until it discovered the benefits of rent reporting. Implementing a rent reporting program gave AHEAD the boost it needed to attract resident interest in the program, as residents recognized the benefits immediately.

"When we started offering the option to have rental-payment history reported to the credit bureaus, we went from having no residents participating in our financial coaching program to having dozens of people coming to opt-in to have their payments reported," says Matthew Manning, Director of the Home Ownership Center for AHEAD.

"Many of the residents who took advantage of our financial literacy programs are now starting to catch some of the breaks they've been waiting for. Rather than being knocked back into the hole, someone's holding the ladder and making sure it's safe for them to climb back out."

A recent Experian RentBureau[R] study of nearly 20,000 affordable housing leases found the addition of rental-payment history increased the VantageScore[R] 3-0 credit score of scoreable participants by an average of 29 points. If a score increase like that moves a resident to a lower risk category, it can have tangible financial benefits for them. For instance, the number of participants in the prime credit category increased by 24 percent when rental payment history was added to their credit files. Prime consumers in the study received modeled credit card interest rates that were 10.8 percentage points lower than subprime consumers.

In addition, 100 percent of the study participants who were previously unscoreable became scoreable, with the majority falling into the least-risky prime category.

"The data continues to affirm that apartment companies are uniquely positioned to help all renters, including affordable-housing residents, build their credit history by reporting rental-payment history," says Emily Christiansen, Director, Experian RentBureau[R]. "This makes reporting rental-payment history a marketable amenity that can help apartment communities with affordable housing differentiate themselves from the competition in a meaningful way for many prospective renters."

For affordable-housing residents who don't have enough credit history to be scoreable, the addition of rental-payment history can have a significant impact, according to Sarah Chenven, Director of Programs and Strategic Initiatives, Credit Builders Alliance. Credit Builders Alliance supports nonprofits, including affordable-housing operators such as AHEAD, implement credit reporting and education programs.

"At CBA, we are committed to identifying and fostering responsible ways for low- and moderate-income individuals, families and businesses to build a credit history as a financial asset. One of the things that we realized about the strength of rental payment reporting is that you can get that history in one fell swoop," Chenven says. "Once an affordable housing provider starts reporting, it can report up to 24 months of history. We believe it's potentially a really powerful credit-building tool for residents, and that's what we're all about."

In the Experian RentBureau[R] study, 97 percent of the previously no-hit and credit-unscoreable residents moved into one of the two least-risky risk segments with the addition of positive rental-payment history. In addition, 23 percent of residents with thin credit files migrated to the thick-file category, which can potentially signal to a lender that they are able to manage multiple credit obligations effectively.

Owners Benefit, Too

While reporting positive rental-payment history to the credit file helps residents build credit history, some operators wonder how it might benefit them as an organization. According to Chenven and Manning, there are several marketing and operations benefits, including increasing the likelihood that residents will pay rent on time.

"It's a competitive advantage because many people today understand how important their credit history is," Chenven says. "We believe it provides a positive incentive to pay on time. People know that their on-time rent payments are being reported to the credit file, and they know how valuable that credit history is."

With positive rental history now appearing on credit reports, rent reporting operates as an incentive for residents to make on-time rental payments. Negative rental payment history is often reported to credit reports through other channels, such as collection agencies, when people get too far behind on their rent payments or skip on their lease with a balance due.

"If they stop making positive payments, that positive credit line goes away," Chenven says. "While it doesn't necessarily hurt them unless it goes to collections and is reported separately by a collection agency, it doesn't continue to help them build credit history." Helping affordable-housing residents is what apartment operators such as AHEAD are most concerned with from a mission perspective.

"We believe it's the right thing to do," Manning says. "We believe that people who make their rental payments on time deserve to reap the benefits. Life is hard enough as it is, but it's even more difficult if you're financially unstable and have poor credit. Rent reporting helps fulfill our mission of helping people build or rebuild themselves to be more successful moving forward."

Peter Jakel is an Account Director for LinnellTaylor Marketing. VantageScore[R] is a registered trademark of VantageScore Solutions. LLC.
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Author:Jakel, Peter
Date:Apr 1, 2015
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