Reporting rent to the credit bureaus is one of those most hotly contested potential aspects of the landlord-tenant relationship that frustrate both parties. After all, reporting rent payments to the good credit bureaus, and the bad ones, changes the dynamic of this business relationship. But when the rubber meets the road, what really happens when rent payments show up on someone’s credit report? Not what you’d expect.
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What Gets Reported and What Does Not?
First, not all rent that’s reported is the same. Some landlords will only report someone’s positive payment history to assist a good tenant in building credit. Some landlords report it all: on-time payments, late payments and outstanding debt. Some, rarely, only report when a tenant defrauds them and skips out owing money.
It’s important to understand that when rent is reported to the major credit bureaus, it’s typically categorized like a tradeline (a credit card or loan). For someone who’s been paying their rent on time for years, this can be a very good thing. A person with a thin credit file suddenly has multiple months and potentially years of positive payment history in their favor. That’s something when trying to take out a loan for a car or house.
But unfortunately, when a landlord reports rent debt to the major credit bureaus after a tenant has absconded owing 3 months back rent and damages, it now becomes part of their credit report for seven years. Not as much as a dings to the credit score, it could be 50 points lower but it’s a financial mark that holds a person back from renting elsewhere, or even getting a job in some instances.
Why Would Landlords Report?
First and foremost, no landlord is going to report rent payments for no reason. There’s a reason why this trend is emerging.
For example, deterrence matters. When a landlord can confidently tell someone that their rent payments will be reported to the credit bureaus, it changes the equation of missing rent. It’s not just between them and their current landlord, now it impacts their ability to apply for an apartment down the road if they destroy their own credit score.
Furthermore, recovery factors into reporting. When tenants leave owing three months rent (and damages), there’s no recourse through collections without small claims court, which takes time and investment, or through collection agencies, who take their cut and may not get the tenant to pay anything anyway. But when reporting happens to the credit bureaus, landlords don’t see cash in hand right away, but they do have a form of leverage. If a tenant wants to rent again, or buy a car or house, this unpaid debt must be addressed. Some come back months later willing to settle just to remove it from their credit.
But reporting takes work. A landlord has to create an account with the major credit bureaus, or partner with an outside company, to have proper reporting access. There’s paperwork. There are regulations about what can be approved and when. For a small landlord with just one or two units, this can feel like overreach.
What Tenants Should Know?
Most tenants don’t know their rent payments can potentially be on their credit report until it’s too late, and then awareness becomes important.
Tenants will benefit from this if they’ve never been able to build credit without credit cards or loans; this proves fiscal responsibility on someone’s record. This history matters for younger renters or those who previously had poor credit and are now trying to start with a clean slate.
However, negative reporting is detrimental. Just one month of unpaid rent that shows up on the credit report has as much of an impact as defaulting on a credit card or having a car repossessed, and rightfully so, as delinquencies will drop some people’s credit scores anywhere from 50 – 100 points or more depending on their average credit score across history.
In addition, tenants fail to realize how permanent reporting is. It’s one thing for an angry letter to be marked received or to have late fees added onto an outstanding balance; however, once something is reported to the credit bureaus, it’s a marker that stays with someone forever, well, seven years from the first delinquency date, not just until paid. Sure, it updates to “paid,” but it doesn’t remove it from existence.
The Part No One Talks About
What’s helpful is that it doesn’t have to be all or nothing. Many landlords will report good payment histories with active tenancies and then only report debts after move-out occurs if money is owed. This means that as long as tenants pay on time, they’re not putting any blemish on their record that negatively impacts them over time.
For example, some landlords will say they will not report if tenants agree to a payment plan and follow through. Tenants want to keep their credit score intact; landlords want their money. It benefits both parties to try to find common ground without using reporting as a means to an end.
However, consistency is key; once reporting starts, it’s hard not to do it selectively for fear of fair housing violations. If debt gets reported for some tenants but not others without documentation hammering home why, then there’s a risk for discrimination claims.
The Technology
Software management makes reporting rent easier than ever; where it was once manually transferred every month at the tenant’s request, now digital systems do it seamlessly. Smaller property management companies love it because they don’t want the additional work; larger companies are leveraging every dollar they can based on payments made, millions are reported monthly.
But technology also means tenants now access apps through which they can constantly track their credit bureaus; they see it change in real-time. They know if debt was reported in two days instead of two months. Awareness is great, but so is transparency when disputes arise early and often.
Where Are We Going?
In either case, reporting is going to become commonplace in the rental industry whether independent landlords partake or not. For example, large management companies are already reporting millions worth of rental payments on a monthly basis; once this becomes commonplace, tenants will expect their monthly rent amounts reflected on their reports.
But it changes the relationship dynamic completely when tenants know they’ll have another avenue by which accountability exists, they’ll acknowledge instead of outright cutting corners with finances when they’re struggling for three months before skipping town because they think no one will find them.
For landlords who can avoid an eviction by leveraging appeal with minimal effort compared to paying an attorney? All the better.
Yet nothing inherently increases or decreases value through this process; with great power comes great responsibility.
If used correctly it’s an amazing thing for all parties involved; if not used thoughtfully it worsens an already complex relationship beyond just leasing terms and conditions.
It’s landlords and tenants willing to understand early on that they’ll benefit from such massive changes that will thrive moving forward in this changing environment.