Experian's latest analysis uncovers how the addition of rental payment data to credit files can help financially excluded consumers gain access to traditional financial services
COSTA MESA, Calif.-- Experian®, the leading global information services company, today announced itsrecent report on the impact of positive rent reporting on subsidized housing residents. Experian was the first credit reporting agency to incorporate on-time rental payments to its database. To show the value of adding alternative data to credit files, Experian conducted an analysis to examine how rental tradelines impact credit file thickness, risk segment migration, credit scores and the ability to score previously unscoreable residents.
"'Financial exclusion' is a term that describes the lack of access to basic financial services. Being denied the opportunity to have low-cost loans or even a bank account is a reality for many Americans, and they are forced into using alternative services to conduct simple transactions," said Brannan Johnston, vice president and managing director, Experian RentBureau®. "Adding on-time rental payments to credit files may help those who operate primarily on a cash basis to integrate into the banking system and establish a credit history that they can leverage to receive more affordable credit and improve their economic well-being."
Additional findings from the Credit for Renting whitepaper confirm:
The average VantageScore® 3.0 score change for previously scoreable participants in the study was an increase of 29 points
95 percent of study participants experienced a score increase or no score change with subprime and nonprime residents receiving the greatest positive score impact
19 percent of study participants previously considered subprime migrated to at least one higher (less risky) risk segment, typically yielding more affordable credit and additional credit opportunities
23 percent of thin-file residents migrated to the thick-file category, potentially signaling to a lender the ability to manage multiple credit obligations
97 percent of the previously no-hit (and credit unscoreable) residents fell in one of the two least risky risk segments with the addition of the paid-as-agreed rental tradelines
"Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process. This excluded many Americans from the opportunity to attain credit due to a limited or no credit history," said Genevieve Juillard, president of Experian Consumer Information Services. "For the last decade, Experian has advocated for full-file reporting and invested in new sources of data outside the traditional sets, such as Experian RentBureau, to help expand credit files. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home."
To conduct the analysis, Experian RentBureau gathered rental payment data from the Experian RentBureau database which is comprised of both positive and negative rental payment data. Experian incorporates the on-time rental payment data reported to Experian RentBureau into Experian credit reports. Nearly 20,000 leases, as reported by property management companies to Experian RentBureau, were found that met the desired criteria, including the receipt of housing subsidies on the lease and positive lease payment behavior. Subsidized leases with negative rental payment history specifically were excluded from the analysis. The addition of these leases to the Experian credit database then was simulated.
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