Rent reporting to the major credit bureaus is an in-demand service with landlords and for good reason. Historically, landlords have been slower to adopt this process, but tenant demand drives the industry to focus more on this. From protecting your credit history from delinquent tenants to making your properties more marketable, you’ve come to the right place to learn more about reporting rent payments.
It is important to understand why your tenants may or may not want their landlord to report their monthly rent payments and what those pros and cons equate to for you. We’ll dive into all these points and touch on a new law centered around rent reporting that California landlords should be aware of.
What Is Rent Reporting?
Rent reporting enables landlords to report their tenants on time and late rental payments to credit bureaus. When a landlord offers credit reporting as part of their lease agreement, and the tenant agrees to sign up for the service, landlords can choose to cover the cost of the service or pass it along to their tenant. Once rent is reported, a new tradeline will appear on the renters credit report, and renters can expect their credit score to change within the first 30 days following their first on-time payment.
This process allows tenants the opportunity to increase their credit score – leading to more and potentially better financial opportunities without incurring additional debt. This can mean lower interest rates, better insurance premiums, and more.
Why Report Rent Payments to Credit Bureaus
With services like PayRent, the renter’s “full file”, (both the on-time and late) payments are reported. If tenants are aware that late or missed rent payments are being reported to the credit bureaus, they may be more likely to submit their rent on time. This is especially true for those tenants with a limited credit history looking to build out their credit profiles positively.
The “good” in all this is that you are helping to create better rent payment habits for new and existing tenants. You’ll also attract those tenants who typically pay their rent on time. In addition, you can offer good residents a benefit for doing something they’ve already been doing. Offering credit reporting helps you stand out to prospective residents while they hunt for their new living space, possibly giving you an edge in a competitive market.
What Are The Pros And Cons Of Rent Reporting for landlords?
- Positive reporting – On-time payments can often have significant effects for those currently building credit, rewarding your renters for their on-time payments.
- Tenant screening – When a renter has opted for rent reporting at past properties, you will have access to that rental history: the good and the bad.
- Marketability – Reporting may attract more tenants whose financial goals align with having good credit – and more opportunities to build that good credit.
- Negative reporting – For tenants, late or missed payments can be reported to the credit bureaus, resulting in a negative impact on their credit score. This may cause some renters to complain when a full credit report is pulled.
- Potential cost – Rent reporting will generally be handled by a third-party service provider, which may add another expense and may lower your net operating income. Many property management software platforms now have this feature, so you may be able to implement rent reporting to the credit bureaus without incurring additional expenses.
Simply put, the pros of reporting rent payments to the credit bureaus outweigh the cons.
Benefits of Rent Reporting For Landlords:
- Additional amenity – Offering rent reporting as an amenity for your tenants can mean you are attracting those who pay rent on time. These tenants are more apt to have their finances in order.
- Helping the industry as a whole – When a tenant opts in to have their rent payments reported on one property, it allows the next landlord to view their tenant’s “worthiness” by shedding light on their rental history. So what’s good for you is good for them, and vice versa.
- Lower tenant risk – Having a better understanding of your potential tenant’s rental history will allow you to lower the risk of evictions of those renters who default on or skip payments.
Benefits of Rent Reporting For Tenants:
- An incentive for on-time payments – For both tenants already accustomed to paying on time and those who may have a history of struggling to make rent a priority, a boost in their credit score is a benefit of rent reporting, and all the more reason for them to take up this positive behavior. And positive rent reporting is the easiest way to build credit without debt.
- Achieving future goals – Not only will reporting on-time rent payments to the credit bureaus increase their credit score, but rent reporting will also add additional credit history to their report. This is an excellent benefit and a way for tenants to build credit without applying for credit cards or loans. Credit scores can increase within 30 days of their first on-time payment. Higher scores mean access to better financial opportunities, thus opening the door to accomplishing feats like locking down a mortgage, getting better auto loan rates, and more.
New Law For California Landlords
California landlords: Are you aware of California Rental Law SB 1157? In a nutshell, this recently passed law requires landlords of federally subsidized housing units to offer their tenants the option of reporting their rent payments to the major credit bureaus.
This new law will be effective July 1, 2021, for new leases and October 1, 2021, for active leases. The law will stay in effect until July 1, 2025, and allow the affected landlords to report FICO 9, FICO 10, and VantageScore 3.0 and 4.0 credit scores. This new law is aimed at helping low-income renters the opportunity to build their credit without accruing debt- unlike the more common scenarios of taking on an auto loan or opening a new credit card. While missing or being late on a rent payment may still negatively impact a renter’s credit score, the benefits of rent reporting of on-time payments present a pro and generally outweigh the cons.
To take a deeper dive into this new law, including who will be affected, who will be exempt, cost, and what all to include when offering rent reporting to renters, click here.
There are few downsides to reporting rent payments, and the benefits significantly outweigh the cons for landlords and tenants alike. Rent reporting to the credit bureaus means more incentive for renters to make on-time payments, giving them a boost to their credit score and better financial opportunities and you’ll be in a position to attract and more efficiently vet the best tenants for your properties.