HUD issued a press release announcing the results of a joint study from the U.S. Department of Housing and Urban Development (HUD) and the Policy and Economic Research Council (PERC) found that if the rent payments of HUD-assisted consumers are reported to credit reporting agencies, many of these households would cease being ‘credit invisible.’ These findings in the HUD/PERC research in Potential Impacts of Credit Reporting Public Housing Rental Payment Data align with recent TransUnion research which demonstrated that 100% of residents who were considered unscorable at the time of application became scorable following a year of rent payment reporting. The HUD/PERC study was reported by the WSJ Counting Rent Would Improve Credit Scores of Public-Housing Residents, HUD Finds.
As noted in the HUD press release,
The study analyzed credit scores (from Experian and TransUnion) of more than 9,000 HUD-assisted households in Cook County, Illinois; Louisville, Kentucky; and Seattle using credit risk models from FICO and VantageScore®. Reporting rental payment data resulted in a significant increase in the number of HUD-assisted tenants with credit scores above 620 between 54 and 65 percent. In addition, the inclusion of rental payment data nearly eliminated credit invisibility among HUD-assisted tenants. In one risk model, the rate of ‘unscoreable’ tenants fell from 49-to-seven percent; in another risk model, the share of tenants with little or no credit history fell from 11-to-zero percent.
Rental history is sometimes referred to as “alternative data”. It’s well-known that the use of alternative data, like rental payments and other payments, like cell phone bills, cable bills, and utility payments, can help bring consumers into the financial mainstream.
In 2019, five federal banking agencies looked at alternative data and found that the “use of alternative data may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system.” The agencies added that “[u]sing alternative data may enable consumers to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity.” Further, technological “innovations reflect the continuing evolution of automated underwriting and credit score modeling, offering the potential to lower the cost of credit and increase access to credit.”
As in any program designed to serve consumers, the banking agencies recognized the need for businesses to follow the law, including the Fair Credit Reporting Act (“FCRA”) and the Equal Credit Opportunity Act (“ECOA”). The agencies wrote that “[a] well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure firms understand the opportunities, risks and compliance requirements before using alternative data. Based on that analysis, data that present greater consumer protection risks warrant more robust compliance management. Robust compliance management includes appropriate testing, monitoring and controls to ensure consumer protection risks are understood and addressed.”
 The Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively “the agencies”).
 Interagency Statement on the Use of Alternative Data in Credit Underwriting, Dec. 3, 2019, https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_alternative-data.pdf (“Interagency Statement”) (citations omitted). See, also, press release, Federal Regulators Issue Joint Statement on the Use of Alternative Data in Credit Underwriting, Consumer Fin. Protection Bureau, https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-issue-joint-statement-use-alternative-data-credit-underwriting/, Dec. 3, 2019.
Eric J. Ellman is Senior Vice President for Public Policy and Legal Affairs at the Consumer Data Industry Association (CDIA) in Washington, DC. He also served for eight months as Interim President and CEO of the Association. More