Lack of access to affordable credit is one difficulty faced by low-income Americans. Of course, there are those who lack access because of poor financial decision-making and poor credit history, but many others are denied access because they do not have enough credit history. These people are described as having a thin credit file. A common misconception about credit is that positive payment history on rent, utilities, and services like cellular phones is included in your credit score. However, only delinquent payments are reported to the major credit bureaus. There has been a push to include this type of data in credit files though. The Political and Economic Research Council and the Brookings Institution Urban Markets Initiative released a report that describes the impact on consumers if alternative data were included in credit files. In short, they found that people with limited or no credit history could benefit greatly from the inclusion of this data. The report also found that the risk profiles of the new entrants in the credit market were very similar to those who already had access to the credit mainstream.
Based on this and other research, a small segment of the credit industry took action. PRBC was one of the first credit bureaus to recognize the importance of these types of payments to low-income and thin file credit seekers, so they began to compile this data into an alternative credit file. RentBureau did the same with positive rent payments. Now, one major credit bureau is stepping up. Experian bought RentBureau and will begin to use positive rental payment data to create their general credit files. Therefore, if your property manager reports to RentBureau and you pay your rent on time, you are improving your credit score. This is great news for the 1/3 of Americans whose rent is their largest monthly bill.
I think I will go home tonight and ask my property manager if they report to RentBureau.
For more information about this new service, click here.
For more information about research from PERC and the Brookings Institution, click here.