It looks like credit cards, mortgages, auto loans, collections and bankruptcies will soon have to share the credit report stage with apartment rental accounts. At least they will have to do so at Experian (EXPN). The credit reporting agency recently announced that they added millions of apartment rental accounts to their credit file database in December 2010.
For years, decades in fact, the only time an apartment rental account would show up on a credit report was after the property management company sent it to collections. The collection agency would then report it to the credit bureaus. So, this marks the first time positive apartment experience has been reported to one of the major credit reporting agencies.
This is good news for a variety of reasons. First off, it signals a willingness by one of the Big 3 credit bureaus to step outside of their “financial services” comfort zone and add something other than credit cards, mortgages, and auto loans. This is no small matter. Any time something new is added to a credit report, the furnisher of the data (who is also Experian since they acquired RentBureau) is exposed to potential liability and a slew of Fair Credit Reporting Act obligations.
The second piece of good news is the number of people who now have a legitimate Experian credit file but didn’t prior to the addition of the rental account. Regardless of your opinions about credit bureaus, people are much better off having a credit report than not having a credit report. Having a credit report is essentially a ticket to doing business with mainstream lenders, which means better access to credit and better terms.
Right now, people who do not have credit reports can’t get loans from banks or credit unions because there is no real way to assess their risk. They’re largely relegated to pre-paid debit cards, check cashing stores, payday lenders, pawn lenders and title lenders. That’s an expensive way to live.
But rather than get into a heated discussion about that, I thought it best to just give you the facts. Last week, I spoke with Brannan Johnston, VP and Managing Director of Experian RentBureau, on the new addition to the family and what it means to consumers, their credit reports and scores. Enjoy:
John: Where did the rental information come from?
Brannan: It came from Experian’s acquisition of RentBureau (in June 2010).
John: What kind of new information can we expect to see thanks to this acquisition?
Brannan: Primarily, rental payment histories from large property managers. There is also some collection information from broken apartment leases.
John: Why merge the rent data with the Experian database now?
Brannan: We did it as soon as we could. It took a lot of time and effort to load the data to the Experian database and go through legal and compliance reviews. Our goal for quite some time has been to expand the breadth of the Experian credit file. For many consumers their rent represents their largest monthly obligation. The rental data provides the first account on many consumers’ Experian files.
John: So this will actually create a credit file for many consumers, won’t it?
Brannan: Yes, this created a credit file for many consumers. One third of the consumers in the former RentBureau database had no Experian credit file, or at best they had a thin credit file.
John: How many rental accounts do you now own because of the acquisition?
Brannan: 8 million total. The number added to our database was in the low millions.
John: Tell me what an apartment rent account will look like on an Experian report?
Brannan: It will include the following information; name of the name of the property management company that contributed the data, move in date, monthly payment amount, and the balance remaining on the lease.
John: Most accounts on a credit report are updated monthly. How often will the rental accounts be updated?
Brannan: They will be updated monthly just like any other account.
John: If a consumer wants to dispute the accuracy of one of the rental accounts, how will that be handled?
Brannan: The same protocol for disputing accounts will apply.
John: You mentioned that initially only good accounts will be reported. When will negative accounts be added?
Brannan: That’s to be determined but we’re targeting 2012 for the addition of negative accounts.
John: FICO says they won’t include the rental accounts in their scores until they’ve had the opportunity to fully evaluate the predictive nature of the information. Can Experian score the rental accounts using their own non-FICO scores, like VantageScore?
Brannan: Yes, VantageScore does consider the rental account.
John: The bottom line, is it good for a consumer to have a rental account on their Experian credit report?
Brannan: Experian has done testing on the influence of the data on VantageScore. Our research shows that over one in three consumers in the highest risk VantageScore® score band will improve to at least the next score band with the addition of positive rental data from RentBureau. Some people have seen their score go down because of the rental account but the majority of the score movement has been positive.
John: Is Experian the first credit-reporting agency to include rental obligations on credit reports?
Brannan: Yes, Experian is the first to include apartment rental obligations on credit reports. (end of interview)
The bottom line about this Experian news: It only affects a few million people right now but…. thumbs up!
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.