Help us meet our fundraising goal. Thanks to NewsMatch, your donation will be doubled.

$40,000 goal

NYC Could Lead the Way to Helping 26 Million Who Are “Credit Invisible”

Sample credit report from Experian

As many struggling tenants in cities across the U.S. know, if there’s a question of feeding your landlord’s bank account or feeding your family, “the rent eats first.” What if paying rent on time each month counted toward a renter’s credit score? New York City’s chief financial officer wants to find out.

Comptroller Scott Stringer is expanding efforts to encourage more landlords and property management companies to give tenants the option to have on-time rent payments reported on their credit, The New York Times reports. According to the Times, Stringer’s office looked at a sampling of tenants paying less than $2,000, and found that 76 percent of them would see their credit scores improve if their on-time rental payments were included.

Higher credit scores typically provide greater access to credit and lower interest rates on credit cards, car loans and other loans. Low credit scores or limited credit history often mean borrowers turn to payday loans as the only option in cases of emergency. As I’ve previously covered, a 2016 Pew report estimated that 12 million Americans take out payday loans every year, paying $7 billion in fees, with most fees totaling much more than the loan amount.

According to the Times, the comptroller’s report says about 30 percent of the low-income residents in the analysis would get a credit score for the first time and would have an average score of 700, which the report says is well within the range of a good credit score.

“This could create a powerful credit history that could lift you out of poverty,” Stringer told the Times.

Stringer compared on-time rent payments to on-time mortgage payments; no matter a household’s income, mortgage payments get reported on credit, but not rent payments. He called it “an issue of inequality” in a city that is overwhelmingly filled with renters, the Times reported.

As the Times reported, the New York City Housing Authority (NYCHA), which houses around 400,000 people in 326 properties, has a program that allows tenants to report rent payments to credit bureaus, but agency officials told the Times last week that the program has only one person on board. Stringer wants to expand the program.

Nationwide, there are an estimated 26 million people who are “credit invisible,” meaning they have no credit history with any nationwide credit reporting company, according to the Consumer Financial Protection Bureau. Another 19 million people have such limited credit history that they do not have a credit score, the agency says. People in low-income neighborhoods are much more likely to fall in either category — nearly 45 percent of adults in low-income neighborhoods have limited to no credit history, versus just 9 percent in upper-income neighborhoods.

The credit history numbers also show disparity by race: Twenty-eight percent of black individuals and 27 percent of Hispanic individuals have limited or no credit history, compared with 15 percent of white individuals.

Experian, one of the three main credit rating firms in the U.S., first created a program for landlords or property management companies to report on-time rent payments in 2010, but such reporting is not being used extensively, the Times reported. Individual renters may also self-enroll in the program, though it may come with a cost, depending on which rental payment service their landlords may choose to accept.

Some skeptics of the rent reporting to credit bureaus, the Times notes, worry that it could hurt low-income households more than it would help them. While the Times reports that only on-time payments are reflected in reports to Experian, advocates explained to the Times that tying rent payments to credit scores could disenfranchise renters who have long used rent withholding as leverage to force landlords to improve poor housing conditions.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

Follow Oscar .(JavaScript must be enabled to view this email address)

Tags: new york cityreal estate