Why you should give your residents a chance to build credit with rent payments
Allowing residents to build credit with rent payments provides multiple benefits for property owners and managers too.
In this blog post, we’ll cover:
- The 5 benefits for owners and managers
- Key differentiators for residents
- Horizon Land Company’s win-win with rent-reporting
How property owners and managers benefit from letting residents build credit with their rent payments
As a property management professional, you’ve undoubtedly heard of rental payment credit reporting. A resident or two may have even requested it from you. Letting residents build credit with rent payments is a rapidly growing trend in the multifamily industry because it boosts residents’ credit by an average of 20 points in two months, and 50 points after two years.
One would think you’d have to jump through hoops or sell your first-born for results that substantial. But on the contrary, the opportunity to build credit with rent payments is fast, easy, and convenient for residents. Which explains why it’s popularity is snowballing across the nation.
But what’s in it for management companies? Residents obviously have the most to gain from a rental payment credit reporting program – the opportunity to build credit without debt. But there are 5 major benefits for apartment owners and operators that are often missed. Leading management firms that took the opportunity to jump on the rent payment reporting train early are already several steps ahead. Here’s what they’re taking advantage of:
The 5 key benefits for management companies
1. Rent payment reporting is a competitive differentiator
Of course prospective renters are looking for the primary specs like location, rent price, parking, laundry, etc. But, as residents become privy to the existence of rental payment credit reporting, they add it to their wishlist. In fact, residents are turning to internet forums and social media for insight from their peers. We found a couple of examples on Twitter recently.
Their confusion and frustration is valid. Only 17% of property management companies currently offer a way for residents to build credit with rent payments. Meaning, you can take the road less traveled. Implement a rental payment credit reporting program now to strategically attract the increasing number of residents who are starting to seek it out.
2. It’s a retention tool
Rental credit reporting is sticky. Residents who enroll in their community’s rental payment credit reporting program might stay longer to continue to build credit through your program. That means you get to hang on to the reliable residents who always pay. And your turnover rate decreases.
“The opportunity to pay rent and build your credit at the same time is an amazing tool we offer our tenants and hopefully future home buyers. Our agents have used it to promote our rentals and it just makes us more competitive in this world of fast moving technology.” – Katja Hom, VP Business Development, AveryHess.com
3. While they build credit, you get on-time rent payments
Most rent payment reporting programs don’t report late payments to the credit bureaus. So residents are motivated to pay on-time, every month. In fact, 73% of renters are more likely to pay on-time if they can build credit with rent payments. With this added incentive, cash flow is improved. That also means, less late fees and delinquencies your staff has to deal with.
Rental credit reporting is also far more effective than late fees, rent incentives, or threatening eviction. Not to mention, fees and eviction notices cause an uncomfortable animosity between site staff and residents. And even if the resident is in the wrong, there’s nothing stopping them from leaving a negative review of your community.
Instead, encourage them to pay on-time from the get-go by letting them build credit with rent payments.
4. While they build credit, you boost digital rent payment adoption
Reduce the amount of paper checks you receive. Simple as that. Residents have to pay rent online in order for their payments to be counted towards their credit. So the more residents who enroll, the less paper payments your site staff will have to handle.
Credit reporting is just one way to improve digital payment adoption. If you want to completely eliminate paper-based payments, this guide to online rent payment adoption provides everything you need to move your community to a 100% digital rent cycle.
5. Attract quality renters
Credit Reporting also attracts credit-conscious renters who are likely to pay on-time to take advantage of the program.
Letting your residents build credit with rent payments helps you fill vacancies with quality tenants. It also reduces the risk of delinquencies, evictions, and chronic late payments. Which translates to less stress for your staff.
Want to boost digital payment adoption?
Download the The property manager’s guide to 100% online rent payment adoption to learn how rental credit reporting is a great incentive for online payments.
Key differentiators: Are all services that allow residents to build credit with rent payments equally effective?
The short answer is, no. Not all rental payment credit reporting providers are created equal. They will all report positive rent payments to at least one credit bureau. But there are providers that go above and beyond for the same price as those doing the bare minimum.
We’ve spoken to management companies that are just starting to explore their options because they want to understand what’s out there. Obviously the most convenient program would be one offered through an existing provider to avoid the implementation of a new system. Management companies are looking to leverage those existing partner relationships for mutual wins.
As residents become more informed and eager to build credit with rent payments, they’re looking for a couple key differentiators. And you care about resident satisfaction. So if you’re going to promote rent payment reporting at your community, you might as well provide the “crème de la crème.”
Here are the three non-negotiables when it comes to choosing a rent reporting provider.
Reporting rent payments to all three bureaus (Experian, Equifax, and TransUnion)
This is huge. It’s extremely important that your residents build credit with rent payments on all three bureaus. But, why? Some institutions make decisions based on the average of all three scores. So, not reporting to all three can result in denials or less-than-favorable decisions. And many residents don’t realize that credit cards typically only report to one or two of the bureaus, causing their three scores to vastly differ.
Lender, industry, and region determine which credit bureau an applicant’s score is pulled from. Lenders tend to pull scores from their local bureau. Geographically, Experian is in California, TransUnion is in Illinois, and Equifax is in Georgia.
Why does geography matter?
Here’s a hypothetical. Let’s say you own/operate a community in Atlanta, and one of your residents signs up to build credit with rent payments (because you so graciously offer rent payment reporting). This resident renews their lease with you three times. And they’re always diligent about paying their rent on-time, because they’re really excited about improving their credit.
They finally move out and relocate to California, where they need a new car. The lender at the car dealership pulls their credit report from the primary bureau used on the west coast, Experian. The lender proceeds to offer your former resident less-than-favorable loan terms. And informs them that they are not eligible for whatever special offer is currently being advertised (0 percent down, 0 percent interest, first month free, etc).
Your favorite former resident is scratching their head… how can this be? Well, the credit reporting tool you provided at your community in Atlanta only reported to TransUnion and Equifax, but not Experian. So all their hard work building their credit with those two bureaus is meaningless in this situation. Lesson learned. Residents want their rent payments reported to all three bureaus.
That sounds like a car dealership issue. Wrong. A big problem lenders see in the mortgage world, is first-time home buyers who have had a credit card for years, but one that only reports to one of the bureaus. Mortgage lenders look at all three bureaus. And after checking all three scores, they throw out the highest and the lowest score, and work off the middle. So if your resident only has credit history with one bureau, they may have a problem getting a mortgage.
Rent payment reporting is an easy and effective way for residents to cover all their bases. And by bases, we mean Experian, Equifax, and TransUnion.
Providing a “look back” service to build credit faster
Most rental payment credit reporting providers also allow residents to enroll in a “look back” program that automatically detects any previous rent payments, and reports them all at once. Most look back programs let a resident report any positive payments made during the previous 24 months on the same lease for a one-time fee.
LevelCredit, a leading rent reporting provider in the residential real estate space, found that over 40% of residents who signed up for their rent reporting service also purchased the “look back” or back reporting program.
This is a big value add for residents who are trying to up their score as quickly as possible.
They’ve got a credit dashboard with helpful insights & personalized tips and backed by $1M identity theft insurance
Best in class credit reporting providers include a resident dashboard. This allows them to easily view and track their credit score, credit history, alerts, personalized tips, and more. A good credit reporting dashboard will use bank-level security to encrypt the resident’s financial information. That gives them the tools and security they need to hit their goals.
Here are the 5 must-haves to look for during your next dashboard demo:
1. Rent payment history
The dashboard should allow them to view all of their rental payment history, not just recent rent payments. It should also show them which payments have been reported, and which payments are available to back-report.
2. Credit building insights
The dashboard should allow the resident to see their current credit score so they can track their progress. It should also clearly show where their current score falls on the credit score spectrum. If it’s considered bad, fair, good, or excellent.
Best-in-class providers will also include an account summary. So your residents can quickly determine which of their accounts are in a potentially negative standing, as well as those in good standing. And what their oldest accounts are.
The dashboard should keep track of their latest credit inquiries, and account balances of any revolving accounts, installment loans, and past due payments/collections.
3. Tips and suggestions for building healthy credit
The best programs will help your residents determine what lenders are looking at and why, and how they measure up.
For instance, if a resident is using more than 30% of the available credit on their credit cards, some lenders could frown on that. The best dashboards will highlight this for the resident and recommend they pay that balance down.
4. Credit protection piece
This is the piece residents appreciate most. Many rental payment credit reporting providers have something similar to LifeLock’s entry level product. However, credit protection is typically included for free with rent payment reporting.
With credit protection, residents can get real time alerts about their credit. For example, if an unpaid account is negatively affecting their credit score. Or if it notices a newly opened, or derogatory tradeline. If they become a victim of identity theft, we provide assistance and insurance to help mitigate further fraud and get their credit restored.
5. A dedicated credit building support team
The world of credit is tricky and confusing, but you can help your residents navigate it. If you find the right provider, your residents will receive all the credit assistance they need. And a rental payment credit reporting provider with a team of experts ready to take your residents’ call means your team won’t have to address any complicated credit concerns.
Why Horizon Land Company gave their residents a chance to build credit with rent payments
As part of their mission to boost resident satisfaction, Horizon Land Company (a leading provider in the manufactured housing industry), started offering rent payment reporting as an optional feature for their residents. Many took them up on this offer, creating a win-win situation for Horizon.
Credit reporting “provides our company with a major selling feature, encourages timely rental payments, and increases usage of the online payment option (which reduces onsite workload)” said Kate Costello, VP of operations for Horizon Land Company.
Check out their results!
So why should you give your residents a chance to build credit with rent payments? Depending on their current credit status, you could give them the chance to alter the trajectory of their financial future. You’re potentially helping them build towards a better life. You’re providing education around a somewhat confusing and taboo topic.
Attract new residents, boost retention, get more on-time, digital payments, and set your residents up for success. Implement rental payment credit reporting and get ready for your residents to love you.