How Landlords Can Help Tenants Improve Their Credit Score

If you can believe it, back in 2014, credit agencies began accepting rent payments to measure a tenant’s credit score.   It seemed to have a slow start, but since California passed SB-1157 in July 2021, we are seeing more and more landlords offering this perk and many tenants asking for it.  Still, many landlords do not offer rent reporting to help tenants improve their credit score.

A Brief Overview of California SB-1157

California lawmakers created SB-1157 with the objective of providing renters with limited income the opportunity to improve and build their credit score by reporting their rent payments.  By reporting on-time rent payments to the major credit bureaus, renters can improve their credit scores without opening a new line of credit or taking out a loan.

This senate bill requires landlords of assisted housing developments with more than 15 units to give every new and existing renter the option to report their rent payments to a consumer reporting agency.  To learn more about this senate bill, click here.

Why This Service Is Important For Both Landlords and Tenants

Even if you do not own subsidized rental properties, this service is still important to consider.   Being in Sacramento, our units have housed many recent college graduates.  Often, these new renters have little or no credit history and require a guarantor for their lease.   Others who may need this service to boost their credit score include those who lost their job during the pandemic and had their credit score take a downturn.  Students in your student housing rentals certainly could need this service to start their credit building sooner rather than later, and tenants who are restructuring credit after filing for bankruptcy could use this boost.

Ok, so why does this matter to you?  You would not accept them anyway if they cannot qualify, right?  So we are right there with you!  However, we have had circumstances where we have had minimal movement on a vacancy.  As mentioned above, we received an application from a recent grad with a parent willing to guarantee their lease.  So to us, these tenants are even more secure because they are entering the real world and want to prove themselves, and their guarantor certainly doesn’t want to receive a call that they now have to cover the unpaid rent.  If, when these recent grads were students, their landlord offered to help improve their tenants credit score by providing rent reporting, you could eliminate the need for the guarantor.  It would show right there on their credit report, each and every rent payment, much like a credit card.

Here are three reasons why offering rent reporting will benefit your rental property business.

1. The chance of getting your rent paid on time goes up exponentially.  If tenants know that paying their rent a few days late will affect their credit score, they will be more prompt to deliver it on time.  Also, for tenants who have had this service prior to renting your unit, their credit score will notate timely rent payments.  Having this on a credit report is a huge plus when evaluating a prospective tenant’s credit and ability to pay rent.  For more information on how to read a credit report when vetting applicants, check out our blog: Beyond the FICO Score, How to Read an Applicant’s Credit Report

2. Very few DIY landlords are offering this service. Applicants have inquired if this was a service we offer.  So, by providing this service, you add value to your rental property.  You can stand out against your competitors, securing the best tenant available.
3. We encourage landlords to take the time to build a positive landlord-tenant relationship, and by offering credit reporting, you most definitely will. In addition, if tenants understand that you are willing to go the extra mile to make their life better and more secure, they may be willing to treat your rental property more respectfully.

How Rent Payments Affect Credit

All three major credit bureaus (TransUnion, Equifax, and Experion) will include rent payment information in credit reports if they receive it.

Credit reports, in turn, provide data that create one’s credit score.  However, the two major credit scoring agencies, VantageScore and FICO, have different methods for handling rent payment information.

FICO’s most common version does not use rental payment information in calculating scores.  However, newer versions of FICO (FICO9, FICO10) consider rental information if it is in your credit report.

VantageScore (FICO competitor) will consider rental payment information when determining one’s credit score.

Landlords (or tenants) cannot just report directly to the 3 major credit bureaus.  Instead, they must use a specific rental reporting agency to ensure that the information is processed securely and properly.

It is important to note that according to the “Power of Rent Reporting Pilot” by the Credit Builders Alliance, 80% of renters that participated in their rent reporting pilot program boosted their credit score by an average of 23 points through reported rent payments.   This increase is huge, given tenants do not have to take on the debt of a loan or a line of credit to improve their scores!  No debt means they will continue to have the income to pay their rent on time each month.

How The Process Works

There are two ways to go about offering this to your tenants.  If you are genuinely looking to add value to your rental property and help your tenants improve their credit score, offer to implement a rent reporting service for your tenants.  They simply need to sign up and authorize service with the rent reporting agency you choose.  In addition, they should be willing to pay a fee to you for this service IF you have to pay and manually process it monthly.  We will review a few companies that offer this service below; some charge a fee, and some are free to use.

The other option is you could wait and, if your tenant asks for the service, agree to report rent to an agency they select.  They would choose the rent reporting agency, which would contact you to arrange a way for you to verify the date and amount of rent paid each month.  Note: each company has a different process for you to report the tenant’s rent!  This option takes the monthly process fees (charged by a credit agency to the tenant) off you, BUT if you offer this option to one tenant, you must present it to all tenants.

Keep in mind, if they all have different service companies for you to report to, that could be a real hassle each month.  Of course, you could still charge an administrative fee to your tenant to process it on your end, but that might be a bit much since they likely have to pay the company with which they have signed up.

We have seen landlords charge anywhere from $10-$25 per month to offer this service.

A Few Companies Available to Report Rental Payments

First and foremost, if you use a landlord software company such as TurboTenant, Avail, Hemlane, or Rentec Direct, you likely already have the option to include rent reporting to your tenants.  You would have to enable the preference on your end and then have your tenants authorize it within their portal.

Our preferred DIY landlord property management software, TurboTenant, includes Rent Reporters software for free to landlords who use TurboTenant’s rental payment service (also free of charge).  So neither you, as a landlord, nor your tenants have to pay for their rent reporting service.  It truly is a win-win for everyone!  In addition, Rent Reporters report to both TransUnion and Equifax.  Learn more about TurboTenant.

Avail uses CreditBoost to report their rent payments.  For landlords who use Avail software to collect rent, tenants can pay $3.95 monthly to have their rents reported to TransUnion Credit Bureau.  For landlords interested in signing up with Avail, receive a $50 account credit by clicking here.

Rentec Direct now offers rent reporting via Rent Reporters software.  There is no fee for landlords, but it does cost each tenant $9.95 per month to enable this option.   The software overall does cost $35 a month for landlords but has many beneficial features, like accounting for each rental property.

Hemlane is a property management software company that offers a hybrid DIY landlord/property management option.  Have a vacancy that is occurring right when you’re leaving for vacation?  Hemlane has teams that manage anything from maintenance issues to inspections to marketing and tenant placement.  Oh, I digress.  They offer rent reporting through Boom, which reports to all three credit bureaus.  This service does not require input from the landlord and is solely the tenant’s responsibility to establish through their portal.  The monthly fee is $28, plus $2 per unit.

Other Options

Experian Rent Bureau is an actual reporting service that has services for both landlords and tenants.  The catch is they do not collect rent on your behalf, and you must select a rent payment service they work with.  For a list of those, click here

Rent Reporters does not require a 3^rd party payment system in place.  This option is ideal for landlords who have their own electronic way to receive rent (we see you Quickbooks users!) or for those landlords and tenants who still pay by check each month.  Landlords or Tenants can sign up for a fee.  Rent payment is verified through various ways (Text, Email, Phone) and reported to Equifax or TransUnion.  To learn more about Rent Reporters, click HERE.

Rental Kharma is a site for your tenants to sign up and have their landlord or property manager be verified.  They require a one-time setup and monthly fee for each tenant who signs up.  There is no paperwork or copy of the lease required from the landlord.

They are very easy to use and does not require a 3^rd party payment service to be linked, so again, great for landlords who already have a payment service in place or use a property manager’s system which does not offer a rent reporting service.  Gift each of your tenants $25 off a Rental Kharma account!  That’s 50% off the setup fee!  Just share our unique code: LLRESOURCE25OFF

Whelp, that was A LOT of information!  Bottom line, you and your tenants will benefit no matter which way you choose to offer rent reporting.  Landlords will likely get rents paid on time while providing help to tenants improve their credit score without incurring debt through a loan or line of credit.

Check out our other blogs to guide you on your self-management journey as a landlord:

The Pro’s and Con’s of Holding Your Rental Property In An LLC

Why Landlords Need to Use Independent Contractor Agreements

How to Handle Unapproved Roommates in Your Rental Property

Buying Rental Property?  Make Sure You Evaluate These Structural Items!

Cash Reserves for Rental Properties, How Much is Enough?

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