A new TransUnion [1] study examined the ability to predict a past due delinquency of more than 90 days over the course of 12 months on any type of credit obligation—auto or personal loans and credit cards. It found that when rental tradelines were included in the credit file, there was a 10+% improvement in the model’s ability to predict delinquencies within a one-year period compared with when rental payments were not included.
The study underscores the importance of rent payments as an alternative credit data asset and how this information can provide greater insight into future consumer credit performance.
“Rent payments can provide valuable insight into a consumer’s future credit behaviors," said Maitri Johnson [2], VP of Tenant and Employment Screening at TransUnion. "Alternative credit data has traditionally not been leveraged by lenders despite the predictive power of such information.”
Rent payments possess strong predictive power into a consumer’s likelihood of making payments on other credit obligations due to the prioritization of this expense.
“Encouraging more landlords and property managers to conduct rent reporting is a key next step to making this data asset more accessible in the consumer credit market. It would also help millions of consumers build their credit history and bring them into the financial mainstream,” said Johnson.
According to a recent survey [3] commissioned by TransUnion, rent was cited as the most important bill to pay out of 15 different expenses by 59% of consumers. Reasons consumers perceived the importance of this expense included the severity of consequence of missing a payment, the value of the expense and the normalcy of having the expense.
“TransUnion’s findings support Fannie Mae’s belief that if someone is paying rent consistently it’s likely they could pay their mortgage consistently, too,” said Steve Holden, VP of Single-Family Analytics, Fannie Mae. “That’s why we recently updated our automated underwriting system to incorporate consumers’ rent payment history in the mortgage credit evaluation process, an important step forward in responsibly expanding mortgage credit access for thousands of renters.
Wider consideration of rent payment history across the broader consumer reporting ecosystem could enable more financial institutions to similarly factor this type of credit data into their underwriting models. This is a win-win that demonstrates the potential of using technology and data to responsibly remove long-standing barriers to credit access, while helping to ensure consumers receive a more fair and inclusive credit eligibility assessment.”
Freddie Mac also announced in early November that it is helping renters build credit with a new initiative that encourages multifamily operators to report on-time rental payments to the three major credit reporting bureaus.
For more information on ResidentCredit, TransUnion’s rent payment reporting solution, click here [4].