Costa Mesa, CA – Experian RentBureau, the leading provider of rental payment history data to the multifamily industry, released the findings of an analysis that examines the financial risk posed by residents and the most effective screening metrics to employ to avoid lost revenue resulting 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, write-offs and rental collections.
Source: Experian RentBureau / #Resident #Screening
“We are thrilled to make this comprehensive rental payment data analysis available to the multifamily industry at large. The data affirms the value owners and managers gain by integrating rental payment history data into existing screening practices to identify not only those prospects who pose the greatest threat to NOI, but also good residents with little or no credit history,” said Brannan Johnston, vice president and managing director for Experian RentBureau.
Results of the analysis, presented last week during the National Apartment Association’s Education Conference and Expo in San Diego, Calif., show that, when compared with the distribution of credit scores in the U.S. population, multifamily residents tend to have lower credit scores, representing a higher risk group overall. In addition, with more than half of the applicants in the sample set belonging to the Generation Y demographic, renters are much more likely to be members of younger generations.
According to the analysis, an individual’s prior rental payment history is a strong indicator of how he or she will pay rent in the future. The default rates for prospects with positive rental payment history (i.e., history unmarred by skips or unpaid balances) declined from the data set average, while the default rates for prospects with one prior rental debt skyrocketed to more than three times the average. Additionally, the analysis indicates that residents who repeatedly move out of communities owing money are nearly six times as likely to repeat the behavior compared with those who have consistently paid rent on time.
The study reveals that utilizing rental payment data in conjunction with credit scores in screening provides a more comprehensive understanding of an applicant’s risk profile and his or her likelihood to pay rent as agreed. Rental payment data can be used to further differentiate between higher- and lower-risk applicants, even for applicants within the same score range. For example, applicants with high credit scores who also had negative rental payment data were more thanfour times as likely to default as those with positive rental payment data, further underscoring the benefit of leveraging both rental payment data and credit data in screening.
The need to leverage the combination of rental payment data and credit scores in screening is further magnified by the 64 million thin-file and no-credit-file consumers in the United States. Augmenting the lack of a credit score with rental history shows immediate payback for multifamily owners and managers seeking to improve occupancy while also managing risk. Those applicants with positive prior rental history had a default rate lower than the overall average for the unscoreable applicants in the study and could make strong renters for managers looking to expand their occupancy.
For a copy of the analysis, please visit: www.experian.com/rentalhistoryanalysis
Experian RentBureau is the largest and most widely used credit reporting agency for the multifamily industry. Experian RentBureau’s database receives rental payment histories every 24 hours from property management companies and electronic rent payment processors and currently includes more than 10 million residents nationwide. Data contributors report their rental data to Experian RentBureau directly and automatically.Property management companies utilize this data to screen new rental applicants’ payment history as part of their existing resident screening services.