Overview

Homeownership remains a key lever for long-term wealth-building and the intergenerational transfer of assets. Eliminating historical barriers to homeownership can make this resource a reparative tool to address decades of racial exclusion from wealth-building. But ownership continues to be out of reach for many households with credit ratings too low or nonexistent to obtain a mortgage to purchase a home.

The tightening of lending standards following the Great Recession has presented new challenges to households of color pursuing homeownership, which has become an even more valuable asset with the substantial rise in home prices and historically low interest rates in recent years. The exclusion of people of color from homeownership reflects historical and ongoing discrimination in the mortgage market and other sectors of the economy. As a result, these households remain disproportionately vulnerable to shocks that can further deplete and destabilize long-term economic security.

Rent reporting is one alternative strategy to build credit among renter households that lack histories of mortgage payment and that are more prone to credit invisibility across the major credit bureaus. While rent is a strong predictor of future housing payments, it currently has very little impact in mortgage underwriting, as less than 5 percent of rent payments are reported to credit bureaus. Additionally, traditional credit scoring models used in mortgage underwriting do not incorporate rent payment, though there are efforts underway to update these models. 

Positive rent reporting could allow tenants to report on-time rental payments to boost credit-worthiness and loan eligibility. However, to prevent any potential harm of rent reporting, it is important to make sure that only positive rent payment is reported and captured in credit scoring. Another consideration is the type of payment data reported. Full-file reporting captures both on-time and missed payments, which risks further exacerbating low credit scores in periods of delinquency. Positive rent reporting would protect against that risk by ensuring only on-time payments are counted.

Examples of This Strategy in Action

• California’s SB 1157 is one of the first major state-led initiatives to allow rent reporting across mid- to large-sized rental properties. In effect since July 2021, the law requires private landlords with 15 or more subsidized housing units to allow tenants to opt in to rent reporting to major credit bureaus, at a cost of no more than $10 per household. While the impact of SB 1157 is not yet fully known, HUD’s Office of Policy Development and Research (PD&R) recently completed a small-scale study on the law’s successes and barriers to date. PD&R found that landlords observed a steady increase in credit ratings across tenants, a trend that researchers expected would continue with improved guidance and technical support to owners and tenants in the future.

• Third-party vendors are also potential assets to facilitate rent reporting and streamline implementation. Fintech firms like Esusu center racial equity and credit repair in their services, seeking to promote financial empowerment for households of color historically excluded from the financial mainstream. With oversight, contracted third-party vendors have the potential to promote efficiency in implementation and equity in impact for rent-reporting initiatives.

Next intervention: Reparations