Credit scores should include rental history says Urban Institute

A new study suggests that a change in the information used for credit scores could enable millions of potential homebuyers to qualify for a mortgage.

The Urban Institute says that while credit bureaus pick up missed rent payments, they do not generally record those that are made on time. But these payments are typically most consumers largest monthly expense, providing a good indication of their ability to meet a monthly financial commitment.

The study, funded by the National Fair Housing Alliance, shows that rental history is highly likely to predict mortgage loan performance.

The researchers accounted for renters having (on average) lower incomes and credit scores and that they typically put down smaller down payments when buying their first home.

With the analysis comparing homeownership costs with rental costs, the study shows that most renters are paying more in monthly housing costs than owners, the study concludes that rental payment history is a powerful indication for credit risk purposes.

The Consumer Data Industry Association commented on the study: “We believe that credit reporting allows mortgage lenders to make the most informed decision based on the best data. Increasing the kinds of data inside credit reports would give lenders a fuller picture of a potential customer.”