Why I'll Always Report Rent Payments To Credit Bureaus

Whether you are a tenant or a landlord, credit history is necessary. Whenever someone applies for credit, a mortgage, or an auto loan, organizations check a person’s credit history. And it doesn’t matter the amount. It could be as small as a few hundred dollars or as much as a mortgage. By looking at someone’s credit history, lenders can gauge the recipient’s likelihood of repaying the loan. They need to know what—if any—financial risks the person poses.

There are compelling reasons to report a tenant’s rent payments to credit bureaus if you are a landlord. Of course, deciding to report tenants might sound rather passive-aggressive. But there are several advantages for both you and your tenants. Some tenants may even want you to report their payments.

Before exploring the benefits, let’s get a better understanding of a credit report.

What Does A Credit Report Look Like?

There are five main parts to a credit report. They include:

Payment history – You see if a potential tenant makes all payments on time.
The amount owed – This is the total amount of credit a person has and the amount they owe. It’s one thing to owe on a mortgage, but it’s another thing to have a $10,000 limit credit card and only owe $1,000.
Length of credit history – A short credit history doesn’t necessarily mean a negative report, but it is still considered.
New inquiries – This will depend on the type of inquiry. Applying for multiple new credit cards doesn’t look good. In contrast, different inquiries on a mortgage could suggest a person is searching for the best option.
Type of credit – It is normal to have a mortgage and possibly even two car loans. Still, large debts on other kinds of loans or credit cards may suggest a person isn’t financially savvy.

The three main credit bureaus that include rental payments in their reports are Experian, Equifax, and TransUnion.

Why Report Tenants to Credit Bureaus?

The most significant benefit of reporting tenants’ rent payments is that it encourages on-time rent payments. When tenants know they could be reported for late payments or not paying at all, it dramatically increases your chances of receiving the rent on time. So you don’t have to worry about chasing up payments or charging late fees, which improves your overall service.

There are some other compelling reasons to report tenants to credit bureaus as well.

1. Tenants can improve their credit score.

In April 2019, statistics showed that roughly 82% of tenants paid their rent on time. Reporting on-time payments is a massive advantage to the tenant because it will improve their credit score. A higher credit score increases their chances of approval for loans and mortgages in the future.

2. You can build better relationships.

Because reporting rent payments to credit bureaus encourages tenants to pay rent on time, you can focus more on the positive sides of being a successful landlord. Tenants can be happy that you’re helping their credit score. You have more time for repairs and working at keeping your tenants happy.

3. You are helping the industry.

It’s not always easy to find good tenants. However, because few landlords report rental payment history, it is difficult to get accurate information on a potential tenant’s risk regarding rental payment consistency. If more landlords reported late payments, we all would have a clearer idea of whether the tenant will be a risk.

4. It could be easier to rent your property.

A 2017 survey by credit bureau TransUnion found that a slight majority of tenants want landlords to report rent payments. The survey showed that 51% of tenants would choose a property with payment reporting over one that doesn’t. So reporting rent payments can give you an edge over your competitors.

Because you are helping the tenant and the relationship is better, it is more likely that they will stay for longer.

5. You can encourage online rental payments.

Offering to report rent payments gives you an excellent opportunity to encourage tenants to pay rent online. Paying rent online is safer and provides a digital copy of all your transactions. When you couple the option to pay rent online with reporting payments, more tenants will choose this option.

6. It’s only fair.

Just as it is reasonable to report those who don’t pay on time, it is the right thing to reward those who pay on time.

The Potential Negatives

It is safe to say that the positives do outweigh the negatives. Nevertheless, there are two things that landlords should bear in mind.

1. Some tenants won’t be happy.

It is possible that the late payments don’t affect the overall credit score of a tenant, but it will appear on a full report. Reporting late payments might upset the small handful of delinquent tenants who pay rent late.

2. The cost.

As you can’t report directly to the credit bureaus, you will need to use a third-party service provider, which may incur additional charges. However, you can decide to share some of the costs with tenants.

Many of the best rent collection apps or property management software have features that include rent payment reporting. If you use a rental app, check its features to see if reporting to credit bureaus is one of them. If not, contact your vendor to see if they can offer this service.

What To Do About Delinquent Tenants

It’s never an easy decision to make, but it is essential to report delinquent renters. After all, your credit history could be at risk if tenants don’t pay rent on time.

First, check your rental agreement to make sure they are late. If you’re using a rent collection app, this should be easy from the dashboard. It is also worth checking the laws in your state. Send a late notification and contact them by phone to confirm they have received the notice. Make sure they are fully aware of how much they owe and when you expect payment. It would be wise to inform them that you will report them if the payment isn’t made.

If you do report the delinquent tenant, don’t forget your responsibilities. By law, you must inform the tenant of the report within 30 days of making it. It is also necessary for you to notify the right agency when the debt has been paid off.

Conclusion

There are many positive reasons to report tenants to credit bureaus. Tenants have a great incentive to pay rent on time, and they can improve their credit score. Also, by reporting rent payments to credit bureaus, you help the wider landlord community find the best tenants.

Do you think sharing information with credit bureaus can help or harm your relationship with your tenants?

Tell us why in the comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.