Renters Could Get Help Building Credit Under Proposed Law. Why Are Tenant Advocates Wary?

Landlords could be required to report rent payments to credit bureaus under a proposal making its way through the state legislature.

Assemblymember Matt Haney introduced AB 2747, arguing it would help renters build credit by establishing a history of timely rent payments.

“To have access to a lot of things, whether it’s buying a home or buying a car or even having a place to rent, you need credit,” he said. “And a lot of people find themselves without the opportunity to build credit, even when they’re doing all of the right things, like paying their rent on time.”

Under the proposal, property owners would have to offer to report tenants’ positive rental payment information to one of the major credit bureaus. But the law carves out a major exception: it wouldn’t apply to most buildings with 15 or fewer units. Landlords could charge tenants for the cost of reporting, up to $10 a month, and renters could put in a written request to stop the reporting but would have to wait six months to re-enroll.

Haney frames the proposal as a matter of fairness: When homeowners pay their mortgages each month, the payments are usually reported to credit agencies, bolstering their credit. He argues that renters shouldn’t miss out on this benefit of paying rent on time, especially since they can suffer negative credit consequences if rental debt ends up in collections.

UCLA senior David Ramirez, 23, is the Government Relations Committee chair for the UC Student Association and is advocating for the bill on behalf of his peers. “It could be a game changer for many students,” he said. “Once we graduate, we’re going to need to find our own housing, we’re gonna need to buy our first car and do all these other things that would require a good credit. But we’re not necessarily prepared with the tools to really do that.”

According to the Consumer Financial Protection Bureau, some 45 million Americans didn’t have credit scores in 2015. This group was disproportionately young, Black, Latino and low-income.

Rent reporting is increasingly being touted as a way to change that. To date, fewer than 5% of renter households are estimated to have rental payment information reflected in their credit files, but at least three states now have some form of rent reporting measure in place, including California.

Haney’s proposal builds off a law passed in 2020 that requires landlords with 15 or more state-subsidized affordable units to offer rent reporting.

When U.S. Department of Housing and Urban Development staff interviewed property owners about their experiences with that law, they expressed frustrations with setting up and administering the program. They also described tenants’ distrust and said they struggled to explain the benefits of rent reporting. They estimated that only four to 15% of their renters opted into the program.

Some property owner groups have voiced their opposition to the current proposal, balking at what they see as the latest effort to tighten the regulatory chokehold around their livelihoods. The California Rental Housing Association argues the law could create logistical and financial burdens for landlords.

Tenant and consumer advocates are also raising concerns about the proposal.

“There’s too many unintended consequences in this,” said Shanti Singh, communications and legislative director for Tenants Together. “It’s really a black box for tenants. We don’t really understand how these agencies are going to actually interpret rental payment.”

Among the unknowns Singh and others fret over: What happens if a tenant decides to opt out of reporting after a few months, or they move into a new building that isn’t required to offer reporting, or pay only part of their rent — will that negatively impact their score? If this becomes common practice, will landlords be biased against tenants who haven’t reported their rent payments? And what does that mean for those who can’t afford to pay for it?

National groups have aired concerns about the practice of rent reporting in general, arguing the biggest risks come with reporting both positive and negative rental payment history — but even reporting only on-time payments, like Haney’s bill proposes, could prove detrimental.

Studies on the impacts of reporting positive rent payments find that the vast majority of tenants experience credit score increases, but a subset see their scores drop. (Skeptics note the findings can be misleadingly positive because the studies involve small sample sizes and often focus on residents in subsidized housing whose rent payments are designed to be affordable. In some cases, the pilot programs paired rent reporting with financial coaching.)

Tina Rosales-Torres, a housing policy advocate with the Western Center on Law and Poverty, shares many of these concerns. But because Haney’s bill has so far gotten strong support from lawmakers, she’s focused on working with them to improve it. “How do we make it the best for people if it’s going to happen?” she said. “How do we ensure people can actually use this?”

To that end, she’s pushing for fewer property owners to be exempted from the law. As the proposal stands, buildings with fewer than 15 units would be exempt, unless they’re owned by an LLC, a corporation, a trust or an individual with multiple residential properties. “The right to build their credit really shouldn’t be determined based on who owns their home,” she said.