Here for the latest trends, insights, and tips to help property managers and rental operators find the best possible residents in a changing landscape.
A common question I get from folks interested in rent payment reporting is:
“How long will it take for residents to see an impact to their credit score from rent reporting?”
The idea here is that many property management companies want to report rent payments first and foremost as a resident benefit.
According to a study by Transunion, 60% of renters may see their credit scores increase in the first month of reporting.
Assuming on-time payments, adding rent payments to a credit report will help build out that resident's credit profile, and very likely increase their credit score.
And for the PM company, it’s also a competitive advantage to provide this service to renters.
Considering is it likely a renter's largest monthly expense, the same Transunion study found that 67% of renters said they'd choose an apartment with rent payment reporting in place against an otherwise identical apartment that doesn't report rent payments.
Not only are they more likely to choose your apartment (assuming you report rent) but it's much more likely you will get quality applicants who care about their financial standing.
Something to keep in mind though is that there are two different considerations in how rent payment reporting will affect their credit profile; the credit report vs the credit score.
To be clear, there is no hard and fast rule or formula to say when a credit report or credit score will be updated from rent reporting.
But there are some guidelines that we can use.
When are Credit REPORTS updated?
Generally speaking, Credit Reports are updated when new information is provided by lenders or furnishers to the nationwide credit reporting agencies (Equifax, Experian, TransUnion).
This update happens almost immediately when new information is received.
Usually, this is about once a month, but sometimes it can be more frequent (weekly), or less frequent (up to 45 days). It really depends on the data furnisher and when they report.
Keep in mind, that appearing responsible on a credit report is different from improving the actual credit score.
A credit score is calculated from the information on a credit report. However, even if rent payments are not included in how a credit score is calculated, anyone reviewing the credit report will be able to see if rent payments are included and whether in good standing or not.
When are Credit SCORES updated?
Like credit reports, updates to a credit score, from rent reporting, can vary.
After all, not all credit scores are the same.
FICO Score 8 for example is a credit score model many lenders use to assess creditworthiness however, it doesn’t take into consideration rent payment history in its calculations, which means on-time rent payments won’t boost a FICO Score 8 score.
The rationale is that rent payments are not debt obligations which is what the FICO Score 8 is trying to assess.
Luckily, newer credit scoring models, such as the FICO Score 9, FICO XD, and VantageScore, do include rent payments in their calculations.
For these models, on-time rental payments can boost a credit score, especially if there is not much history or the credit profile needs repairing.
TransUnion’s ResidentScore, an industry-specific scoring model meant to assess the risk of bad outcomes like skips and evictions, also takes into consideration rent payment history. I represent this model so reach out if you'd like to find out more.
Another consideration is that since credit scores take into account multiple attributes, and sometimes differently, it can be difficult to pinpoint when rent reporting specifically resulted in a change.
Or if no change, the possibility that one attribute as a positive mark (e.g. rent reporting) was otherwise offset by a negative mark (increased credit card balance).
And like reports, credit scores can be updated often, multiple times a month even.
The variance comes from how many active credit accounts are open, what information is received by the credit reporting agencies as well as when it is received.
Remember, not all furnishers report to all three credit reporting agencies so you may even see some variations in your credit scores between them.
Just check out my personal Credit Karma score results.
Between Equifax and Transunion, both of which are using VantageScore 3.0 in this assessment, there are very clear differences.
When I look at “See what changed” for both, I get slightly different results.
To be clear, I do not have rent payment history on my credit report because I don’t rent an apartment, and haven't for a number of years, but the illustration still holds that credit scores can vary.
The Transunion result shows that I (1) paid down my credit card balance (which I do every month), (2) paid down some of my mortgage, and (3) showed that an old account (my old student loans) has been removed from my report.
On the other hand, the Equifax result (again using VantageScore 3.0) only lists the reduced credit card balance as a determining factor.
Obviously, the type of change matters.
If a resident pays off their credit card every month and has for years, then it's unlikely that this month's payment would make any noticeable change to their credit score. Assuming they have a $0 balance every 1st of the month.
But if they have another credit card that usually carries a sizeable balance and they suddenly pay it off completely, that may make a significant change to their credit score.
The effect of rent reporting could be similar. If they've previously rented from a property manager who reported rent payment history, continuing that trend at your property may not make much of an impact, at least not immediately.
However if this is new to them, and especially if they have a thin credit profile, rent payment history could make a significant impact on their score. In fact, Transunion research shows that when rent payments were included in the credit file, consumers experienced an average increase of nearly 60 points to their credit score.
What To Tell Your Residents
When a resident invariably asks, how or when will rent reporting affect my credit, here are a few things you can say.
"What's great is that it will show up on your credit report as soon as we start reporting it for you. How it affects your credit score can vary but a positive payment history will look good on your credit report."
"There are a lot of factors that go into a credit score, what's great is that on-time payments are a big part of that. As soon as we start reporting, your rent payments they will show up on your credit report."
"We know that around 60% of folks may see an increase in thier credit scores within the first month of reporting. Though every person is different, but the good news is that the rent payments will show as a positive line item on your credit report as soon as we start reporting it."
"Results will vary by individual, but research shows that when rent payments were included in the credit file, consumers experienced an average increase of nearly 60 points to their credit score."
By the way, if you’re interested in understanding a little more about what factors affect a credit score, here is a good resource: https://www.transunion.com/blog/credit-advice/guide-to-credit-score-factors
You can also remind residents that they can get a free credit report from each of the three nationwide credit reporting agencies weekly atannualcreditreport.com.
Johnny, can you help me?
Maybe, let's chat. If you're interested in rent reporting, comment below or reach out, and let's discuss.
Additional References & Resources:
Disclaimer: The opinions and views expressed in this article do not necessarily represent the views of my employer. The information provided is intended for general informational purposes only and may not be suitable for your specific circ*mstances. The information presented may also be subject to change and may not be up-to-date. Therefore, you should not rely on this information as legal, financial, or professional advice. Please consult with your own legal or financial advisors and abide by all applicable laws, rules, and regulations related to your situation.
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