Top Seven Reasons to Use Rental Payment History Data to Identify High Quality Residents

COSTA MESA, CA - Experian RentBureau, the leading provider of rental payment history data to the multifamily industry, recently released the findings of an analysis examining the financial risk posed by residents and the most effective screening metrics to employ to avoid lost revenue from risky residents.

The analysis, Risk versus reward: identifying the highest-quality resident using rental payment history, provides unique, industry-specific insights regarding the use of rental payment data in conjunction with credit scores in screening to produce a superior prediction of a resident’s propensity to default. The analysis also includes first-of-its-kind data regarding late payments, nonsufficient funds (NSF), write-offs and rental collections.

Here’s a look at the top seven takeaways from the analysis that offer multifamily owners and property managers a look into the best applications of resident payment history data:

Complement Traditional Credit Scoring: The use of rental payment data in conjunction with credit scores in the screening process produces a superior prediction of a resident’s propensity to default. To improve rent default rates and better assess an applicant’s risk, owners and property managers are best served by utilizing rental payment data along with credit scores. Renters with the highest credit scores show much lower rates of default. However, within that population, those with negative rental history are more than four times as likely to default as those with positive rental history.

Realize Better Risk Management: Renters, as measured by credit scores, are a higher-risk group than the U.S. population overall. Eighty-five percent of the renters in the sample set are in one of the three lowest VantageScore® credit ranges (501 to 799), compared with a national average of only 64 percent.

Gain Insight Into Propensity to Default: How an individual paid rent in the past is a good indicator of how he or she will pay rent in the future. Renters with one prior rental debt have a default rate nearly four times higher than applicants with positive rental history.

Avoid Balances Owed: Rental payment history data allows for the identification of residents who repeatedly move out of communities owing money. These individuals are nearly six times as likely to repeat this behavior compared with a resident who has consistently paid rent on time.

Spot Serial Skippers: By identifying prospects with multiple negative prior rental payments, owners and property managers can avoid renting to individuals who likely are serial skippers and have a 35 percent chance of defaulting again.

Minimize Late and NSF Payments: Default among residents who have a history of late or NSF payments escalates steadily as the number of late or NSF payments increases. Renters with three or more late or NSF payments have a default rate more than twice as high as renters with only two or fewer late or NSF payments.

Achieve Higher Occupancies: Augmenting the lack of a credit score with rental history data can help owners and property managers improve occupancy while also managing risk. Unscoreable individuals with positive rental history have lower overall default rates and could make strong renters for managers looking to increase occupancy.

To learn more about how rental payment history can help your portfolio protect NOI, reduce skips and evictions, and identify the highest-quality residents, download a complimentary copy of Risk versus reward: identifying the highest-quality resident using rental payment history, an analysis of the most effective screening metrics to employ to avoid lost revenues from risky residents.

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