The fourth annual national credit score knowledge survey, released May 12, 2014 by the Consumer Federation of America and VantageScore Solutions, LLC, determined that millennials age 18-34 are far less educated about credit scores than other adults. With this generation trading home ownership for freedom of renting, their lack of knowledge of credit scores could prove to be somewhat risky for property managers.
Reporting rental payment history is one way to help create awareness about the significance of credit scores, while allowing each renter to build credit history. It encourages responsibility, while providing property managers with key data to make informed rental decisions. As the rental market becomes increasingly competitive, accessing applicant rental payment histories will give property managers an edge in mitigating unwanted risks.
A recent study of Experian® RentBureau® data found that more than 50,000 renters who initiated their leases over a six year period ended their leases owing money, which unfortunately can lead to a drop in occupancy rates and net operating incomes.
Industry experts convened during the 2013 National Apartment Association Education Conference to analyze the study of more than 750,000 U.S. renters of class A & B properties. The results of the analysis provide property managers with valuable insight into mitigating unwanted rental risks.
The Majority of Renters Have Credit Scores Below 700
While looking over a credit report to see where an applicant’s score places them within the rental criteria, the majority of applicants may not meet the requirement on score alone. Fifty-six percent of all applicants sampled had a score below 700¹. One reason for the high percentage of lower scores may be attributed to the fact that “Generation Y” (18 to 29-year-olds) who account for a critical audience in the current rental market, comprised more than half of the applicants in the sample set. When looking at the complete picture, this does not always demonstrate poor credit history, but instead could be attributed to a lack of time spent building a credit rating.
Two Skips Means Six Times the Risk
A renter who has missed a payment in the past is more inclined to miss one again in the future. However, a default renter can be substantially more accurately predicted during the resident screening process based on specific red flags. This study showed that while applicants with positive rental payment histories may have nearly a six percent default rate, renters with two or more prior debts run a rate nearly six times that (of 35 percent). Likewise, an applicant with two or fewer late non-sufficient funds payments on a report on their record showed nearly an eight percent rate of default. Those applicants from the same sample who showed three or more late or NSF payments sky rocketed up to a nearly 17 percent default rate. Data from this objective perspective demonstrates that while not everyone will have a pristine record, high-risk renters are easily identifiable.
The multifamily housing industry is one that is laden with rules and regulations in place to protect both the lessee and the leasor. The best way for all parties to benefit is to identify and adhere to consistent procedures. The goal is to encourage and aide in promoting a positive lifestyle. This is particularly important for those without the cleanest of backgrounds and for millennial renters who lack credit score awareness. By offering methods of building credit history such as making payments on time there becomes an added incentive benefiting both property managers and renters.
With such a competitive rental market, rental history reporting gives both property managers and responsible renters an advantage. For millennial renters looking to increase awareness about their credit score, or for individuals looking to build credit history, reporting rental payments provides an ideal opportunity that in turn, benefits the multifamily housing industry.
To view the complete analysis by Experian RentBureau please visit: http://www.experian.com/rentbureau/analysis-request.html
Founded in 1986, CIC is a leading nationwide provider of data solutions for Real Estate Investment Trusts (REITs), property managers, housing authorities, apartment associations, real estate agents and independent rental owners throughout the U.S. For nearly three decades, CIC has leveraged the use of technology to deliver the most reliable and comprehensive information to clients, and continues to do so, today. By delivering quality affordable data solutions to the multifamily housing industry, CIC is proud to provide clients with applicant information they can trust giving them The Power of Decision. For more information about CIC’s solutions including resident screening, employment screening, wholesale data, screening platforms and property management tools & software, please visit www.CICReports.com or call 888-316-4242.
¹For the purpose of this data analysis, Experian RentBureau utilized the VantageScore® advanced credit scoring model, which produces a highly predictive score and scores up to 14 million more consumers previously deemed unscoreable. VantageScore has a scale range of 501 to 990 to represent a consumer’s creditworthiness.
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