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Low-income tenants can get ‘digital credit’ for paying their rent

Digital based reporting rental payments offers low-income renters a safe and easy opportunity to build credit without taking on additional debt.

Digital based reporting rental payments offers low-income renters a safe and easy opportunity to build credit without taking on additional debt.
Digital based reporting rental payments offers low-income renters a safe and easy opportunity to build credit without taking on additional debt.

There is a problematic wealth gap in the U.S. One way to address this is to help consumers build their credit profile. This is seen as especially important for those who have poor credit scores or no credit scores at all.

Overcoming this is seen as essential for achieving ‘financial wellbeing’, which has been defined as: “Financial well-being is a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”

To achieve this, access to credit building opportunities need to be opened up. One means to do so is with rent reporting. This means the reporting of tenants’ rental payments to the credit bureaus, and capturing the data digitally enabling further assessment by interested parties.

In terms of why this matters, many of renters with poor credit scores are also those who are more likely to have lower-income and hold less wealth than homeowners. In the U.S., renters account for nearly 60 percent of all households with incomes under $25,000 per year.

There is also an ethnic divide, in that renters are more likely to be households of color. For example, black and Hispanic households are twice as likely as white households to rent.

The common problem shared is that renters invariably lack enough credit history to generate a credit score. Consequently, renters are seven times more likely to be credit invisible compared to homeowners.

This means, for these households, the lack of access to credit can inhibit their ability to overcome financial challenges and pursue economic mobility.

This approach has become a proven credit building strategy that spurs economic mobility for low-income renters.

One example is with the Credit Builders Alliance (CBA). The CBA has created a Rent Reporting Technical Assistance Center (RRTAC) with underwriting support from Experian. This Center aims to reduce barriers for affordable housing providers to adopt this impactful strategy and foster the industry collaboration needed to scale it.

Commenting on the scheme to Digital Journal is Dara Duguay, the CEO of CBA. Duguay says: “CBA’s Rent Reporting Technical Assistance Center will function as a one-stop shop to assist landlords for low-income tenants. Coupled with extensive technical assistance provided by CBA, the affordable housing providers will have a road map and guidance for adding rent reporting to their operations.”

Through this strategy, the reporting rental payments offers low-income renters a safe and easy opportunity to build credit without taking on additional debt. This is set out in the ‘Power of Rent Reporting pilot‘, where CBA found that 100 percent of residents who started off with no credit score became scorable at the near prime or prime level.

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Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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