Is Eviction Data part of your Credit Analysis?
An eviction is arguably the most important information a landlord can have for screening an individual for an apartment rental. Evictions can also be highly predictive of an individual's credit risk. Some savvy lenders will pull an Evictions report as a first step in making a decision on a new loan request. Those lenders recognize that 75% of eviction filings never result in a money judgment and never appear on a credit report. For those evictions that do result in a money judgment, it typically takes up to 90 days to show up on a credit report and 90 days is a long time to fly under the radar and find a new apartment or run up a significant loan balance.
A consumer's behavior with respect to "credit-like" services, like apartment rent, is likely to be predictive of the consumer's behavior on actual credit products. According to the Information Policy Institute1, there is an obvious parallel between rental payments and other credit payments, like mortgage payments. Since renters can fall behind in their rent without immediately being evicted, there is a "credit-like" quality to consumer apartment rentals. As with mortgages, the sanction mechanism with a apartment lease is almost identical: failure to repay your mortgage leads to foreclosure, whereas failure to pay your rent results in eviction. And like a foreclosure, the financial event of an eviction tells lenders quite a bit about the creditworthiness of a borrower.
What about all rental payment data?
Experian recently announced the acquisition of RentBureau and that consumer rental payments will be included in its credit reports. Experian is currently only reporting positive rental payment information about consumers. But starting in 2012, Experian will also begin to report late rent payments.
According to Barrett Burns, CEO of Vantage Score Solutions, there has always been an understanding that rent payments are very predictive, so the Vantage Score was designed to include rent payments in its credit-scoring model. The problem has been that the volume of data has been insignificant, since so few landlords supply data to the credit bureaus. According to the National Multi-Housing Council, there are 96 million renters in the United States. With the acquisition of RentBureau this year, Experian now tracks the payment histories of about 8 million renters or about 8% of consumers who rent apartments.2
Despite the efforts to report rent payment data, the current dilemma is still a lack of sufficient positive information about timely payments. Evictions data, on the other hand, is public record data that is available on all consumers and covers all types of eviction legal proceedings across all states. For instance, a MicroBilt evictions report will return an individual's complete address history and all evictions records for those addresses during the times an individual was living at those addresses.
Short-term lenders looking for new data to give them an edge in their credit decisioning should consider evictions data as part of the mix.
1"Giving Underserved Consumers Better Access to Credit System: The Promise of Non-Traditional Data," Information Policy Institute, July 2005
2"Credit Bureau Starts Tracking Rent Payments: Good News or Bad News?" Walletpop.com, January 31, 2011, Lynnette Khalfani-Cox