In the first randomized study of rent reporting—the inclusion of housing rental payments in credit data—we show that this practice can help people get a credit score for the first time or improve their score. It is exceedingly difficult to get by in the US economy without participating in the credit system. People with higher credit scores are typically offered a range of credit products with competitive interest rates, and accessing debt and making payments on time helps further boost their credit scores. Yet many people have fewer or less favorable forms of credit available to them and thus find themselves unable to build their credit records.
In recent years, the major credit-scoring companies have begun adjusting scoring algorithms to factor in reported rental payments. Preliminary research suggests that rent reporting can tangibly improve people’s credit scores. In this report, we present the results of the first randomized controlled trial that tests the impact of opt-in, positive-only rent reporting on credit visibility and credit scores.
Why This Matters
People who have low credit scores or do not have a credit score are unable to access many types of financial products, are charged higher interest rates, and may have fewer options when searching for housing. These limitations and additional costs can add up to thousands of dollars annually, making it harder for people to improve their financial situations.
Over the last decade, rent reporting has seen significant growth in adoption and implementation, and several states, municipalities, and public housing authorities have either formally explored rent reporting or launched fully fledged pilot programs. In addition, Freddie Mac, Fannie Mae, and the Federal Housing Administration have begun to explore rent reporting systems to support broader access to credit.
What We Found
We find that positive-only rent reporting leads to large, statistically significant increases in the likelihood of having a credit score (using VantageScore, which scores more people and responds more quickly to new accounts than FICO). That is, people who sign up for rent reporting are more likely to have enough information in their credit report for the bureaus to produce a credit score. Positive-only rent reporting also increases the likelihood of having at least a “near-prime” score (a VantageScore of at least 601) by an estimated 12 percentage points. This is a large increase given that most people in the study had credit scores at the beginning of the study period. The share of the treatment group without credit scores was cut in half, from 16 percent to 8 percent. We estimate that rent reporting increased the share of people with near-prime scores or better by 25 percentage points among those whose rents were reported.
The sample size in this study is too small to rule out modestly sized impacts. With that caveat, we do not find that rent reporting has a statistically significant impact on the likelihood of having a “prime” credit score or better (a VantageScore of at least 661), and we do not detect a statistically significant treatment effect on the average credit score among people with scores. In our exploratory analysis, we found an unanticipated decline in debt relative to the treatment group that warrants further study.
In addition to these impacts, the study revealed important implementation findings. In our sample, 27 percent of people who signed up were either ineligible to have their rent reported (e.g., person may not have been the leaseholder according to the housing provider) or faced issues with enrollment in the study and rent reporting. Of those who were eligible and enrolled, 30 percent of tenants did not have their rent reported during the research period; rent was not reported if the tenant did not pay rent, housing subsidies covered 100 percent of rent with no tenant contribution, or administrative issues arose.
We conclude that opt-in, positive rent reporting can be very beneficial to a segment of tenants who are eligible to have their rent reported, have no or low credit scores, and pay their rent on time.
How We Did It
We partnered with Credit Builders Alliance, a nonprofit seeking to bridge the gap between nonprofits and credit bureaus to help people with poor or no credit participate in the mainstream financial system; Esusu, a technology platform that facilitates rent reporting; TransUnion, one of the country’s major credit agencies; and a group of nonprofit affordable housing providers. We evaluated “opt-in” and “positive-only” reporting, wherein rent is only reported for tenants who sign up and missed or late rental payments are not reported. Housing providers offered tenants at each housing development in the study the chance to participate. We divided enrollees into two groups: a treatment group whose rent could be reported as soon as the enrollment and set-up period were complete and a waitlisted control group whose rental payments could be reported four months later. We compare outcomes for the treatment and waitlist groups during this period, which should be a sufficient length of time for primary, short-term outcomes to appear. The final research sample includes 269 renters, with 141 in the treatment group and 128 in the waitlist group.
