For the first time, mortgage lenders and other creditors will have access to a consumer’s rental payment history, thanks to Experian. The company, which acquired a credit bureau for the multifamily industry last year, is now able to take the data from that bureau and put it into consumers’ credit files.
Brannan Johnson, vice president and managing director of Experian RentBureau, said because of the fragmented nature of the property management business, this type of information has not been included in consumers’ credit repository files.
It has been a goal of Experian to make this information available, one that had been made possible with the June 2010 acquisition of RentBureau. RentBureau has created technology that interfaces with property management software and allows this data to be extracted, he said.
Currently, one-third of the American population are renters, a number that is growing as a result of the mortgage crisis. Furthermore, many of these people—Experian cites National Multi Housing Council figures that show there are 96 million individuals—are not being scored fully because of their thin credit files.
There are similarities between making a monthly rent payment and making a monthly mortgage payment, but because the data was not being shared, it was not being reflected in the consumer’s credit score.
For those who lost their home to foreclosure, the company said, having this information in their files allows them to rebuild their credit score.
At first, Experian will incorporate just positive rental data into a credit file. Johnson notes that testing finds one-in-three consumers at the highest-risk VantageScore score band will improve to the next band with the inclusion of this information.
He added the data would appear as a trade line in the credit report. Another advantage of having this data in the file is that lenders can update their underwriting processes to capture rental payment history automatically and not have to enter it manually.
VantageScore Solutions president and chief executive Barrett Burns said in an interview that when its scoring model was being developed, the designers knew that rental payment data was highly predictive of payment behavior but at the time there was not much being reported.
But, he added, someday they knew it would be, so the algorithm was designed with that in mind and no adjustment was needed to include the RentBureau information.
Until now, the only information being reported regarding rental payment history was negative, and that was if the debt went into collection. Now, renters, especially potential first-time homebuyers, get an immediate lift to their score, Burns noted. So thin-file consumers will benefit from this capability.
With regards to this rental payment data being used in FICO algorithms, a spokesman for the company said Experian has not shared the data with it. When that does happen, FICO scientists will be able to test it to be able to judge what type of impact it would have on scores.
Separately, VantageScore said its 2.0 algorithm is now available for creditors to use with data from all three credit bureaus.
The algorithm was created using consumer data from two overlapping time frames: 2006 to 2008 and 2007 to 2009.
In an interview with Burns, which took place at the Mortgage Bankers Association convention in Atlanta back in October, he explained that the new model’s predictive ability has a 6% performance improvement for new accounts and an 8% improvement for existing accounts over the scores generated by the credit reporting companies own algorithms for the real estate industry.
When compared to VantageScore 1.0, the performance improvement is 7% for new accounts and 6% for existing accounts for the real estate industry.
