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This article originally appeared on National
Housing Institute Issue #125, September/October 2002 at the following URL:
http://www.nhi.org/online/issues/125/goingsubprime.html#renters
Renters Can Build Credit
Homeowners have always been able to develop a
solid credit history simply by paying their mortgage on time. Now, renters who
pay their rent on time will have a chance to build on their own good record.
A new financial service model, Pay Rent, Build Credit(SM), is being developed
that may soon provide a national system for renters to make electronic rent
payments directly into a landlord’s bank account. Participating financial
institutions – not the landlord or building management agent – will account
for and report the rental payment amount and transaction date.
“The financial institution time-stamps the receipt of rent, which arrives in
the landlord’s designated lock box account electronically, so there’s no
room for error,” says Michael Nathans, creator of the system. Landlords and
apartment owners will save on the costs associated with “handling” the rent
on its way to the bank, delinquencies, collection loss and tenant screening.
Building credit with rent payments can help consumers broaden their housing
choices, rehabilitate a damaged or impaired credit history and obtain a lower
interest rate on a car loan or other form of credit. The model is qualified by
the Federal Reserve Board as a community development service for financial
institutions under the Community Reinvestment Act.
The data network established by Pay Rent, Build Credit(SM) will operate similar
to a credit bureau and supply the data it manages to participating building
management agents and financial institutions that are authorized by the tenant
to view it. Tenants will have free access to their rental payment data using a
special secure connection to the Pay Rent, Build Credit(SM) Internet portal.
Dispute resolution also will be provided online, at no cost to the consumer.
PriceWaterhouseCoopers was selected as a technical partner to assure data
quality and consumer privacy.
“We expect to be unusual, to be a pro-consumer credit bureau that also adds
value and efficiency to the credit-risk management process,” Nathans says. An
independent project steering committee and advisory board will monitor the
system. The Urban League, Greater Miami Neighborhoods, and the National Housing
Conference are among many participants that have expressed interest in serving
on the advisory board and monitoring the system, says Nathans.
In addition to giving tenants an incentive to pay rent on time, financial
institutions gain the opportunity to profitably process approximately 380
million rent payments annually and to expand the number of applicants who can be
fairly assessed using automated credit risk management technologies.
Pay Rent, Build Credit(SM) has attracted the interest of several major
foundations and banks. “We’re looking to spread the cost of the data around
fairly to those financial institutions that are logical beneficiaries of the
information,” says Nathans. The system’s management team also plans to
partner with community and faith-based financial education counseling groups, as
well as with financial institutions and apartment owners to inform renters about
the importance and value of building credit with rent payments. Nathans says the
system could launch as early as January 2003.
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