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Rental Credit Reporting – Tenant Opt-In Not Required

The median price of existing homes has increased nearly 20% year over year, fueled by intense demand, reduced inventory, and historically low-interest rates. The situation is no better for new homes as the cost of lumber has skyrocketed 250% since last year, raising average prices by nearly $36,000. For millennials seeking their first home, saving for a down payment and finding affordable housing is becoming ever more challenging. Add disruptions to the workforce and layoffs, and the rental housing market appears poised for growth.

Yet, as federal and state eviction bans near their conclusion, there will be a significant number of renters delinquent on rent payments, despite the government’s best efforts in passing renter and housing provider relief.

The second half of 2021 looks like an interesting period in the rental market, particularly for single-unit or smaller independent landlords. The dilemma – how to realize the benefits of the favorable trends, mitigate the impact of the end of moratoriums, and optimize return on investment in this new environment.

Incenting On-Time Rent Payments

These are extraordinary times with some 18% of renters behind on payments as COVID has adversely impacted so many. However, even in normal times, an estimated 4.5% - 5% of renters are delinquent. Late payments, continued delinquencies, and evictions are inconvenient, costly, on average $3,500.00, and disruptive to cash flow.

If you wish to change someone’s behavior, incent them to do so. Common wisdom says you motivate with either the carrot or the stick. One solution gaining traction with landlords, rental credit reporting, offers both the carrot, an improved credit rating for those paying on time, and the stick, reporting late or non-payment to the credit bureaus, negatively impacting future purchasing power. When a prospective tenant is advised in advance that the landlord reports both positive and negative information to the credit bureaus, rent becomes a priority – 7 in 10 tenants (73%) are more likely to make their payments on time, every time.

Most landlords thoroughly vet potential tenants, many accessing services available that offer everything from credit reports to criminal records, identity, and past address verification, to eviction history. But most smaller property owners and individual landlords do not contribute back to credit bureaus, missing a significant opportunity. Other credit grantors, such as banks, credit card companies, and auto finance companies, have long used credit reporting effectively to incent the behavior they seek – honor your obligations, pay your loans and bills on time.

Contributing to the Credit Reporting Ecosystem

Many independent landlords seem unaware they can report rental payment information to the credit bureaus. Neither of the two federal acts regulating consumer credit reporting, the Consumer Credit Reporting Agencies Act and the federal Fair Credit Reporting Act, mandates landlords report consumer data to the National Credit Reporting Agencies. However, when you choose to report payment history, it is your opportunity to make a semi-public statement regarding the tenant’s creditworthiness and ability to make future purchases.

Today all three credit bureaus include rent payment histories, provided the landlord report the data.

Credit Reporting Fees and Options

Landlords have the option of paying for the cost of credit reporting or charging the renter for the service. California’s “first in the nation” rental credit reporting law (SB 1157) allows reporting fees to be passed along to tenants. Typically, landlords decide who should pay the costs depending on who benefits most and who wants the reporting.

We recommend landlords introduce credit reporting to potential tenants during the negotiation process and before signing a lease. Surveys show that two-thirds of renters (67%) would choose the rental property with payment reporting in effect when given a choice between similar properties. With this approach, tenants who want to opt-in can pay the fee or share in the cost.

For those who do not opt-in, you will be responsible for any associated fees; however, and this is crucially important, you may continue to report payment history regardless of the tenant’s decision. Tenant opt-in is not required for landlords to submit payment data to the credit bureaus.

In Summary

It is not mandatory to report rental payments to the credit bureaus but doing so can significantly benefit both parties. Particularly in the current environment, independent landlords must employ every strategy available to manage their properties. Eviction moratoriums will soon conclude, and delinquent payments will become due and payable. New laws and changes in compliance and regulatory measures will increase complexity.

The Fair Credit Reporting Act requires complete and accurate reporting once a landlord decides to participate in the rental credit reporting process. Navigating your rental customer relationships and administering other legal and regulatory items in the future requires an approach and a solution.

The Sperlonga Solution and Its Benefits

For best practices in collection processes and strategies to improve cash flow and on-time payments, visit the credit reporting experts at Sperlonga Data. We simplify the credit reporting process, enabling independent landlords to contribute to the consumer credit reporting ecosystem. With Sperlonga’s credit reporting solutions, you elevate rent obligations to the same level of importance as consumer loans or credit card payments.

The benefits - our case studies indicate that landlords who initiate credit reporting can expect to see a reduction of up to 30% of delinquencies in the first ninety days. For tenants making on-time payments, their credit scores can increase by up to an additional 50 points. Both parties benefit from the Sperlonga win/win solution.

Another benefit for new landlords entering the reporting system is reducing old balances. Once credit reporting is initiated, people realize the importance of paying down their obligations to qualify for better credit scores and more affordable rates for future purchases.

The winning solution from Sperlonga Data simplifies administration, ensures compliance, delivers more timely payments with fewer delinquencies, and enhances your ability to collect outstanding balances, all while improving the credit scores of your best paying tenants.