California’s recent rent reporting law, SB 1157, provides significant opportunities for property managers to reduce delinquencies and benefit from a new revenue stream while helping renters establish a positive credit history.
For Renters, the Chance to Build Credit Scores
The purpose of the bill is to give renters in private buildings with at least 15 subsidized rental units an opportunity to establish and increase their credit scores by paying rent on time. (Paying bills on time is responsible for 35% of a FICO credit score.)
Before SB 1157, renters didn’t benefit from on-time payments, although they could see their credit scores negatively affected by late payments. Why? Because on-time rent payments were never reported to the major credit bureaus. On-time mortgage payments, however, always were. As a result, mortgage holders could build their credit scores by making on-time payments, but renters didn’t have that opportunity. Now, with SB 1157, renters do.
Rent reporting can increase FICO scores by more than 40 points for renters who pay on time.
Credit scores are tied to financial opportunities, because to obtain a car loan, a mortgage, credit cards and other financial products, applicants must generally undergo a credit check. More than 40% of Americans reported that they were turned down for a financial product because of their credit scores in a recent year. The percentage climbed to 74% for those with poor credit scores.
In addition, nearly 45 million adults in the United States have a limited credit history. Roughly 26 million of them are “credit invisible,” which means they have no credit history at all. These people might find a car loan or mortgage hard to achieve.
For renters in this group, and renters with poor credit scores, SB 1157 can provide a financial boost.
For Property Managers, the Chance to Reduce Delinquencies
But SB 1157 doesn’t only provide financial opportunity to renters. It also provides financial opportunities to property managers. Rent reporting can reduce delinquencies by as much as 50%. Roughly 77% of renters indicate they are more likely to pay on time if their payments are reported to credit bureaus.
Rent reporting can also incentivize renters who’ve left a property with past-due amounts to pay. Why? Former renters may find themselves turned down for financial products because of their poor credit history. Paying off delinquent accounts is a way to raise their credit score.
How It Works
SB 1157 requires that renters be offered the opportunity to have their rental payments reported to credit bureaus at the time of the lease agreement and at least once a year subsequently.
The law mandates that renters can choose positive reporting only or a full file, in which both on-time payments and missed payments are included. Full file reporting maximizes the reduction in delinquencies.
A Revenue Stream Opportunity
Property managers can charge up to $10 for the service. Property managers can establish a revenue stream by realizing the difference between the allowable charge and the cost of rent reporting.
New revenue streams are particularly important in the wake of the COVID-19 pandemic, when increased unemployment often impacted timely rent collection and laws and regulations impacted property managers’ recourse options.
SB 1157 went into effect on July 1, 2021 and is currently slated to end on July 1, 2025.
How CredHub Can Help
CredHub works with property management companies to offer rent reporting to their renters by setting up, maintaining and streamlining the process. We report full or positive-only reporting to all three credit bureaus — Equifax, TransUnion and Experian.
Most property managers offer this new renter benefit during move in or lease renewal.
Contact CredHub today to discuss implementing SB 1157 in your properties. Benefit from our experience with 40,000 units reported and 50,000 residents participating.
You can schedule time with our team online or learn more by calling (833) 888-2733