As Rent Reporting Booms, New HUD FAQs Provide Key Guidance

In January, the U.S. Department of Housing and Urban Development (HUD) published a new frequently asked questions (FAQ) document on positive rent reporting, marking its first stance on a rapidly growing practice in the affordable housing industry. Although not legally binding, HUD’s guidance clarifies best practices for rent reporting, allowing tenants to build their credit history by reporting on-time rent payments directly to the credit bureaus.

The HUD guidance arrives at a time when many Americans are struggling with their credit scores. According to a 2022 report from Experian, more than 100 million American adults—42 percent of the country’s adult population—cannot secure credit at mainstream rates due to poor credit scores or a complete lack of a credit score.

The effects of poor credit can be staggering. Faced with limited options for financial products, many individuals with credit challenges turn to payday loans. These loans can average between 114 and 652 percent APR, depending on the state, according to a 2022 analysis from Pew, resulting in a cost of anywhere from $110 to $1,000 on a $500 loan paid back over four months. This is in stark comparison to a credit card, which currently averages 23 percent APR, according to the New York Fed, resulting in a cost of $37.57 over the same four-month loan term.

Poor credit can present challenges even if a person doesn’t want to borrow money and simply seeks housing. “The biggest barrier to moving into private housing is not that people can’t save enough money for the deposit,” says Dara Duguay, CEO of Credit Builders Alliance (CBA). “The issue is that they may not be able to pass the tenant screening that nearly all private apartment complexes require. If you’re credit invisible, you either won’t pass the tenant screening, or you may end up paying more for a security deposit.”

The HUD guidance now clarifies certain best practices for rent reporting programs to improve the financial health of renters.

“We were very excited to see this guidance come out,” says Samir Goel, co-founder and co-CEO of Esusu, a third-party rent reporting platform. Not only does the new HUD guidance provide clarity, Goel says, but it also clarifies HUD’s stance on the issue, which can be important as rent reporting becomes a more common practice nationwide.

Particularly, the HUD guidance emphasizes positive-only rent reporting (as opposed to “full-file” reporting, which includes missed or late payments). Focusing on positive rent reporting “gives renters an opportunity to receive credit for paying rent, which they would otherwise not receive,” says Wemimo Abbey, another co-founder and co-CEO of Esusu. “For those who don’t pay, there are already systems in place that penalize them. People get evicted and receive an eviction notice and a record for seven years. If they are sent to collections, that could also affect their credit score. So, what good does it do us to be the triple whammy on their profile?”

Additionally, these programs can be either opt-in, where renters must proactively sign up to have their rents reported, or opt-out, where tenants must refuse to have their rents reported to the credit agencies. This final distinction received crucial clarity with the updated HUD guidance, says Goel, as there was some misunderstanding regarding whether rent reporting programs in public housing could even be opted out of. “Specifically in the public sector,” Goel states, “there was a misnomer that the guidance for rent reporting was the same as the guidance for income verification,” which requires an opt-in model. HUD’s new FAQs clarify that this is not the case and that housing providers can use either opt-in or opt-out schemes for their rent reporting initiatives.

“One of the reasons why HUD published this guidance was to address that misnomer on how rental reporting is different from the requirements around both health-related data and income verification data,” says Goel.

However, CBA still urges landlords to check any contracts they have with HUD to determine whether there is a requirement to comply with the Federal Privacy Act of 1974 or if those contracts include language about requiring consumer consent. If either of those is the case, then CBA states that its position is that housing providers still need to obtain an opt-in.

Rent Reporting Gains Momentum
In recent years, the practice of rent reporting has gained momentum to address the credit challenges many renters encounter. One of the earliest studies on rent reporting originated from a 2013 pilot program managed by CBA, which culminated in a report they published in 2015. Among other findings, the report revealed that 97 percent of tenants supported rent reporting and that participants experienced an average credit score increase of 23 points, with all previously credit-invisible tenants achieving either a high nonprime or prime credit score.

Several individual states have also conducted pilots for rent reporting. One successful pilot took place in Colorado from October 2021 to April 2024. Due to local legislation, the program was fully funded by the state government and administered by the Colorado Housing and Finance Agency (CHFA) in partnership with a third-party service provider, Self Financial Incorporated. By the end of its 30-month duration, the pilot had enrolled 443 tenants across 33 properties, resulting in an average increase of 62 points in credit score, according to CHFA’s program report. Colorado’s pilot exclusively reported positive rent payments and required tenants to complete a financial literacy course.

Duguay also emphasizes that landlords benefit from rent reporting programs as well. “People pay on time more,” she states. Indeed, research published in 2019 by TransUnion revealed that 73 percent of renters were more likely to pay on time when rent reporting was utilized. Additionally, 67 percent of renters were more inclined to lease in a building that offered rent reporting compared to one that did not.

Given these promising results, “more and more states are working on legislation to pursue rent reporting pilots,” says Rachel Levy-Culler, CBA’s senior specialist for housing innovations. According to Levy-Culler, at least nine states are either working on or have introduced legislation concerning rent reporting: Pennsylvania, Missouri, New Hampshire, Nevada, Maine, New Jersey, Hawaii, Georgia, and Washington. Additionally, a 2023 bill in Oregon to establish a rent reporting pilot died in committee. “So, I definitely think there’s momentum around it.”

In theory, rent reporting is free for a housing provider if they choose to become a credentialed data furnisher and report rental payments to the credit reporting agencies. However, in practice, Duguay says that the process of “getting credentialed as a data furnisher is an investment in time, software, and compliance.” Alternatively, several third-party FinTech companies exist that report rental payments to the credit bureaus on the landlord’s behalf, but this choice involves a fee. A list of seven separate, independently vetted rent reporting companies is available on CBA’s Rent Reporting Center website.

Esusu, one of the country’s first third-party rent reporting companies, according to Goel, helped transform rent reporting into a practice that empowers tenants to achieve better financial health. In the early days of rent reporting, Goel says, “People were keen on reporting negative data. Often, reporting was about trying to be a stick rather than even thinking about it as a carrot. And so, we were the first major players to really think about positive-only reporting, rather than full file.”

Alongside positive-only reporting, Goel emphasizes that Esusu consistently advocates for an opt-out, landlord-funded rent reporting model. “We wanted to make it as easy as possible for people to be a part of it and to benefit from it.”

This guiding principle has driven Esusu’s significant growth in recent years. According to Abbey, Esusu currently serves over 5 million units across all 50 states, representing approximately 12 to 13 million renters. Their efforts have improved tenants’ credit scores by an average of 45 points and have unlocked over $50 billion in credit, with $30 billion representing funds for mortgages. Additionally, Esusu has established credit scores for over 200,000 individuals who were previously credit-invisible.

Although these raw numbers are significant, Goel emphasizes the additional benefits of Esusu’s comprehensive approach to positive rent reporting. “Along the way, we realized that rental data was this incredible unused data source that could help low- to moderate-income people become credit visible, while still giving banks, lenders, and other institutions quality data to underwrite off of.”

Goel describes a scenario that benefits everyone, highlighting the advantages of positive rent reporting that “encourages renters to pay rent on time, which was good for the landlord; allows renters to build their credit, which was good for them; and allows underwriters and credit bureaus to have more representative data so that they could underwrite more people.”

Now, Esusu is taking a more holistic approach to the financial health of renters, moving beyond simply achieving a good credit score, and recently launched a direct-to-consumer app. “For us, it’s really about a comprehensive package for renter financial health,” says Goel. The new app provides financial literacy, financial coaching, tax filing, a directory of available social services, rental insurance, auto refinancing options, and other resources from Freddie Mac and Fannie Mae.

For Goel, this revolves around a commitment to nurturing the broad ecosystem of affordable housing. “For owners and operators, your renter is your most important counterparty. If your renter is financially healthy, they’re going to take better care of the asset. They’re going to stay longer, they’re going to pay rent on time, and that’s going to increase the value of the property.”