BOSTON — Senator Jamie Eldridge (D-Acton), United Way and Boston Builds Credit today joined LISC Boston, WinnCompanies, Jewish Community Relations Council and Inquilinos Boricuas en Acción (IBA) to offer testimony before the Joint Committee on Housing on legislation that would help create upward economic mobility for individuals and families by allowing for credit building through rent reporting.
S. 798, An Act Relative to Credit Building, would create a three-year rent reporting pilot program which will allow for public housing authorities, affordable housing property management companies, landlords and community development corporations to implement a credit building program. Senator Eldridge is the lead sponsor of the legislation heard today.
Currently, when renters miss payments, their credit can be negatively impacted. But renters lack the opportunity to build their credit through on-time payments of rent. The legislation would allow for the regular monthly reporting of tenant rent payments to major consumer reporting agencies as a mechanism to help individuals build credit profiles and put them on a path to financial stability.
“Credit magnifies the impact of poverty — but it doesn’t have to,” said Khushbu Webber, Director of Public Policy at United Way of Massachusetts Bay and Merrimack Valley. “Imagine the progress that could be made if the credit system was used to foster social justice, instead of further marginalizing those in financial distress. A good credit score can make the difference in access—or lack thereof—to safe housing, employment and asset building opportunities like starting a business and buying a home”.
Historically, only homeowners have been able to build positive credit histories when making mortgage payments on time. Without rent reporting, credit reports and credit scores present an incomplete and negatively skewed assessment of the credit risk posed by renters, particularly low- income residents who may lack other mechanisms for building credit.
There are more than 236,000 people in Greater Boston who do not have a prime credit score and who, as a result, face higher fees and lack access to credit required to pursue education, buying a car, or building a business.
United Way founded Boston Builds Credit in partnership with LISC Boston and the City of Boston’s Office for Financial Empowerment in 2017, an initiative that focuses on credit because of the role it plays in either helping or hindering individuals’ ability to save money, weather emergencies, and work toward home ownership. According to the Credit Builders Alliance, poor credit can cost a person over $200,000 in higher interest and fees over the course of their lifetime.
Landlords and utility companies often require a large security deposit from individuals with no or poor credit scores. A prospective employer may include credit history in a background check. Many auto and property insurers price their products, in part, based on credit histories. And a mortgage or small business loan applicant’s credit history could be the difference between obtaining a loan that allows him or her to build a major asset and getting no loan at all.
“Senate Bill 798 would create systemic change in the way individuals access credit,” said Allison Kroner, Director of Boston Builds Credit. “Rent reporting could provide thousands of Massachusetts residents, many of whom are struggling to keep up with rising housing costs, the opportunity to access a built-in mechanism to establish or improve their credit, and in doing so, help get them on the path to greater financial stability.”
“Credit building is an important and underutilized tool for addressing inequality and opening doors to build assets, reduce expenses, and pursue their goals,” said Karen Kelleher, Executive Director at LISC Boston. “Our work on Boston Builds Credit for the past year and a half has only reinforced how important credit is to create financial stability for families.”
Two years ago, WinnCompanies entered into a partnership with NeighborWorks America, Credit Builders Alliance, and five Community Development Corporations to explore the value of rent reporting as a financial capability strategy.
“The focus on supporting the economic opportunity and upward mobility of individuals and families across our portfolio is central to our mission and business,” said Trevor Samios, Vice President of Connected Communities at WinnCompanies. “Through annual surveying of our communities in MA, we have learned that over 35% of our households have identified monthly financial hardships affecting their ability to pay rent and utilities, 37% with difficulty paying bills, 19% unbanked, and 71% not having viewed their credit status and report within the past year.”
According to Samios, through targeted resident outreach, education and outcomes tracking, this initial pilot of 57 households enrolled and studied yielded the following results over the year and a half:
- 80% of participants saw a credit score increase averaging 28 points.
- 47% of participants started with an initial subprime credit score averaging 515, and as of December 2018, moved into prime credit scoring above 675.
- All participants were able to consistently pay their rent on time and maintain tax credit and Section 8 compliance.
- Feedback scoring from participants showed that rent reporting coupled with integrated credit education resulted in a powerful credit building and financial capability strategy.
- Payment-related evictions within the program dwindled to a ten-year low of 6 within the five pilot communities.
Hyde Park resident Caroline Sande participated in the WinnCompanies/NeighborWorks rent reporting pilot program while living at Madison Park Community Development Corporation housing. “The program encouraged me to pay rent on time. It helped me build my credit history and improved my credit score, which in turn increased my purchasing power, and I was able to buy my own home.”
Rent reporting and S.798 provides that opportunity without taking on debt or incurring a monthly expense, and represents a component of credit building that can create significant impact for renters. By reporting residents’ rent payments to the credit bureaus, responsible, mission-driven landlords can offer individuals with poor or no credit an often rare and valuable chance to build their credit history with a payment they already make regularly and without having to assume any additional debt, apply for a new product, or remember to make another monthly payment.
“The ability to access credit is a crucial need for people seeking economic opportunity in today’s economy,” testified Aaron Agulnek, Director of Government Affairs at jewish Community Relations Council. “Given the power of credit scoring agencies on every aspect of individual economic opportunity, it is incumbent on policy makers to ensure that people can build their credit while reforms are considered for the industry.”
“As we face our current housing crisis, we should wonder what we could do to help build economic mobility for low-income families,” testified Rafael Medina, Senior Program Director at IBA. “It is important to embrace strategies to strengthen financial capability as a means to improve their security and stability.”