Rent Reporting for Credit Building

Transcription

1 Rent Reporting for Credit Building March 9, Credit Builders Alliance, Inc. Some rights reserved. CREDIT BUILDERS ALLIANCE and the accompanying Logo are trademarks of Credit Builders Alliance, Inc. This document is licensed under a Creative Commons Attribution-Noncommercial-Share Alike License (US/v.3.0). Noncommercial uses are permitted on the condition that you include an attribution to Credit Builders Alliance. If you alter, transform, or build upon this work, you may distribute the resulting work only under the same or similar license to this one. More information regarding the license is at: Requests for permissions beyond the scope of the license should be directed to Credit Builders Alliance, Inc., at Credit Builders Alliance ("CBA"), a not-for-profit organization, makes this information available for informational purposes only. This information is not intended as legal, financial, other advice, and you and your clients should consult qualified info@creditbuildersalliance.org advisors before making any decisions. CBA does not represent 2016 Credit that Builders any of the Alliance, information Inc. Some will rights produce reserved. results.

2 Rent Reporting for Credit Building This webinar was made possible through the generous support of

3 Rent Reporting for Credit Building To view the full list of webinars and register, please visit:

4 Rent Reporting for Credit Building Credit Builders Alliance

5 Rent Reporting for Credit Building CBA/TFC Strategic Partnership New!: Credit Builders Forum for all practitioners

6 Rent Reporting for Credit Building Webinar Objectives Why is Credit Building important and what exactly is it? How does Rent Reporting fit in? Why Rent Reporting? Power of Rent Reporting Pilot results How Rent Reporting Works FAQs Q&A

7 Why Credit Building? Increases Cash Flow and Creates Opportunities to Save Improves Employment Outcomes Increases Housing Options Improves Access to High-Quality Credit Products Expands Opportunities for Small Business Growth Buffers Economic Shocks and Smooths Income

8 What is Credit Building? CREDIT BUILDING: Establishing and maintaining ACTIVE (paying on-time) trade lines (like installment loans or revolving credit cards) that is reported by the creditor to the major credit bureaus. STRONG CREDIT HISTORY

9 What is Credit Building? How it Works Opening and successfully managing financial products is key to building and maintaining a good credit history.

10 Rent Reporting: A CB Strategy Rent reporting: The establishment of a rental trade line and regular monthly reporting of rental payments to at least one of the major consumer credit bureaus for inclusion on traditional consumer credit reports. Rent reporting for credit building: The pairing of rent reporting with financial/credit coaching or other financial capability programming with the aim of supporting residents to recognize and leverage rent reporting as a credit building opportunity.

11 Rent Reporting for Credit Building Financial Capability in Action Every on-time monthly payment reinforces positive financial habits!

12 The Power of Rent Reporting Pilot Problem: Unlike homeowners, renters do not build credit by making their monthly housing payments. Solution: Reporting rental payments offers low-income renters an opportunity to build credit as a financial asset: Mission-driven affordable housing organizations are poised to help them do so. Goal: To catalyze rent reporting as a valuable and viable option for low-income renters to build credit and financial capability.

13 CBA s Power of Rent Reporting Pilot 8

14 Pilot Overview EPIC Property Management Marquette Management Affordable Housing, Education and Development East Bay Asian Local Development Corporation Covenant Community Capital Cleveland Housing Network Commonwealth Land Trust AHC Greater Baltimore

15 Privacy Act Considerations Affordable housing owners or operators who benefit from federal assistance are subject to the Privacy Act of 1974, which places certain safeguards on the sharing of residents personally identifiable information with a third party, including a credit bureau. Any property owner or operator subject to the Privacy Act and wishing to report rental payment data to the credit bureaus must obtain a resident s opt-in i.e., prior written consent to do so.

16 Pilot Results Summary Renters see rent reporting as a good opportunity for credit building Rent reporting offers a significant credit building opportunity to affordable housing renters Rent reporting is a promising strategy for AHPs seeking to increase resident participation and success in financial coaching and asset building programs Rent reporting in combination with financial coaching can incentivize residents to increase their rates of paying rent on time

17 Pilot Results: Renter Interest Pilot participant survey results: 38% have reviewed their credit report in the past 12 months 96% reported that having good credit is important to them 97% reported that paying rent on time is a good way for them to build their credit

18 Pilot Results: Credit Impact Establish Score 100% of residents with no trades transitioned to the thinfile category and became SCOREABLE by VantageScore 3.0. Risk Segment Percentage of Unscoreable Population Average VantageScore 3.0 before Average VantageScore 3.0 after Prime 72% N/A 688 Nonprime 28% N/A 646 Subprime 0% N/A N/A Total 100% N/A 676

19 Pilot Results: Credit Impact Increase Score 90% Change in Participant Credit Score 80% 70% 60% 50% 40% 30% 79% 79% = avg. increase 23 points 20% 10% 0% 14% 7% Increase No Change Decrease

20 Pilot Results: Credit Impact Increase Score Participant Credit Score Change by Baseline Score Tier % 58% 71% % = avg. increase 32 points Prime Nonprime Subprime # with score decrease # with no score change # with score increase

21 Pilot Results: Promising Practices Clearly connect rent reporting with relevant and specific credit building goals. Incorporating rent reporting enrollment into a regular resident interaction is an efficient and effective strategy for getting high rates of resident participation. Connecting the rent reporting for credit building opportunity with existing financial coaching and asset building programming gives affordable housing providers an additional hook to increase resident engagement and successful participation. Integrating rent reporting for credit building into financial coaching and asset building programming empowers and supports residents to translate their credit improvements into real progress toward their broader financial goals, such as budgeting, saving, and building assets.

22 Future Opportunities & Research More behaviorally-informed research on increasing resident opt-in. More evaluation of rent reporting s impact on residents credit profiles and scores. More research on effective strategies for helping residents translate credit improvements into actual savings, new opportunities, and assets, and for leveraging rent reporting as a positive incentive for on-time rent payment. Productive dialogue within the credit industry regarding the standardization of rent reporting policies and procedures to ensure they accommodate the specific needs of affordable housing providers

23 Key Implementation Considerations Funding for preliminary organizational/ option assessment and program implementation Internal buy-in and prioritization Technological and programmatic readiness and capacity building commitment

24 Rent Reporting for Credit Building CBA s Solution CBA s Rent Reporting for Credit Building Service Supports mission driven affordable housing providers to implement rent reporting for credit building initiatives in order to provide residents with an opportunity to build their credit history and offer a positive incentive for on-time rent payment.

25 Rent Reporting for Credit Building The Big Picture Rent Reporting Credit Building Asset Building Financial Stability

26 Rent Reporting for Credit Building Win-Win-Win Residents gain the opportunity to build credit without assuming additional debt through the establishment of a new, positive, active trade line on their traditional consumer credit report Resident Service Providers gain access to a credit building product/tool which they can wrap coaching and education around and directly provide residents with means to measurably improve their credit profile Property Managers gain the opportunity to a positive incentive for on-time rent payment and a competitive advantage in recruiting new residents.

27 How Rent Reporting Works Rental payment information can be reported to one or more of the major credit bureaus by A Property Manager Or A Third Party Payment Processor

28 Resident Participation Resident Participation Options*: Opt-In Opt-Out Automatic *must comply with Privacy Act

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31 3 rd Data Furnishers RentTrack Rezzcard Rental Kharma (not payment processorprovides rental payment verifications) PayYourRent ClearNow RentReporters *information to CBA s knowledge as of March 9, 2016 date

32 FAQs Does rental information show up on the credit report as an installment or revolving account? Neither actually. Rental information reported on the credit report functions as an open trade line. It has a recurring monthly set payment and does not calculate each monthly payment against any overall balance based on the lease.

33 FAQs Is it possible for rent reporting to have a negative impact on an individual s credit score? Yes. The addition of any new trade line on a credit report, even one with only positive payment history, can potentially result in a decrease in credit score in the short-term.

34 FAQs How could a positive trade line have a negative impact on credit score? Average length of history Debt to credit ratio Movement between scorecards

35 FAQs Are past rental payments reported? Typically, yes. It is the landlord s decision. Up to 24 months of past payment history can be reported in a rental trade on a credit report the very first month a landlord begins reporting.

36 FAQs Are rental trades factored into all credit scores? Newer scores including VantageScore 3.0 and FICO 9 are optimized for rental data. Older and more commonly used scores were designed before the reporting of monthly rental data was commonplace. Many may factor-in rental trades but our understanding of the impact is limited.

37 FAQs How quickly does rent reporting impact an individual s score over time? It depends.* Typically, residents will see a significant increase in their score the first month rent is reported and then modest increases if any each month after that. * There are never guarantees with credit scores, and the rental payment trade line is only one of the factors calculated into credit scores.

38 CBA Rent Reporting for Credit Building Consulting Services Organizational Commitment Assess Reporting Options Outreach, Education & Outcome Tracking Plans Application & Credentialing Program Implementation

39 Additional CBA Tools & Resources Visit our website at creditbuildersalliance.org for great resources to help enhance client and organizational outcomes through the power of credit building! Members Only! Everyone!

40 3 rd Annual Credit Building Symposium

41 Rent Reporting for Credit Building Thank You! Questions Please type your questions into the chat box Learn More at: or contact us at