Holding zero balances on accounts means you aren’t costing them money, which is better than defaulting on loans, not making payments, etc. but doesn’t mean you actually made them much money. People who never get into debt are generally not valuable customers for companies who make their money off interest.
People who require they keep book keeping/overhead for (aka keep active accounts), while not paying them money are actually costing them money.
If you show a past history of being able to cost them money, and then not actually doing so, or even making them money, that is certainly better than actually costing them money.
Aka, you held some debt for awhile, but made your payments and paid it off. Those are high credit score/low risk folks.
Having large outstanding credit balances (especially escalating ones) and only making minimum payments means you’re currently making them money, but are a relatively high risk of costing them money shortly in the future when you inevitably default. Which is a low credit score/high credit risk.
If you have high open credit, but rarely use it, they can’t tell if you’re high risk (you’re waiting to blow all your credit and leave the country) or low risk (would work yourself to the bone to pay every dollar back and would never overcommit) - but one thing is for sure, you aren’t actually making them money right now, and there is some risk you’ll max out your credit and disappear.
If you are paying ongoing interest and never default though, you’re the gravy customer for a CC company, as you’re be paying them waaaaay more interest than anyone else. So medium credit score, medium credit risk.
It’s a balancing act.
Someone with zero credit history is a complete unknown, which for various reasons is likely the highest risk of all, and why it’s also only slightly easier to get credit in that situation than if you were a serial bankruptcy machine.
To some extent, renting an apartment does take on some debt. You're basically being loaned the property in exchange for making interest payments.
Which, to me, they should not be allowed to do. I'm yet to find a rental property that lets you pay rent in arrears, so there's absolutely no use of credit occurring.
Not to mention you have the ability to literally burn down their property (even by accident) with no real way they can stop you, since you have the run of the place. At best they can try to lock you up afterwards, but if you do it right it would be nearly impossible to prove.
Having a tenant in possession is always a 'credit' risk.
If it's credit, report it. Don't charge people a fee to do so. I'm actually fairly surprised the bureaus haven't forbidden this. And if I was a renter and this was being done to me as a condition of rental I'd be disputing the tradeline.
> they've always got some degree of 'arrears' risk going on.
That's not a default of an extended line of credit.
> Not to mention you have the ability to literally burn down their property (even by accident) with no real way they can stop you
That's your investment risk as a landlord and why you carry insurance, still has nothing to do with my creditworthiness. Like you say, "even by accident".
Same reason some employers like to check your credit if they expect you to be handling their or their customers money.
A track record of following your agreements when other people’s money is at stake, in a way they can get what is agreed on at the end of the day is important to them - and to if they want to place their money or assets in your hands going forward. There are many ways for a loan, or tenant, to go south and be a bad deal for them.
If that is inconvenient for you, they’ll usually be happy to tell you to bother someone else instead. If they’re smart, anyway. Dumb lenders lose principal, and that’s death to them if they do it too often.
Personally I don’t write loans/notes or rent out property because I’m not interested in dealing with the manipulation or excuses. I do have excellent credit though. And have had people write private notes for some side projects of mine. YMMV.
You pay upfront for the use of a home/apartment/condo - you are not being extended any kind of credit.
For the same reason prepaid phones don't report to credit bureaus.
That corner cases exist where you might be out money through the fault - or not - of the tenant doesn't make it a credit instrument.
All of your examples are entirely understandable - they're just not credit.
That's why there are separate reporting agencies for tenants and evictions.
No matter how you slice it, you are not extending credit to anyone by renting your home.
> A track record of following your agreements when other people’s money is at stake, in a way they can get what is agreed on at the end of the day is important to them - and to if they want to place their money or assets in your hands.
Now you're trying to conflate doing a credit _check_ for prospective tenants (something I have zero issue with and is completely different to this) with "allowing property management companies to, for a fee of course, report your entirely-paid-in-advance rental / lease payments as credit arrangements in arrears.
Perhaps if you start billing your rent in arrears, there would be a case for this.
To wit, the fact that in some situations you might be out some money doesn’t mean you have extended someone credit.
> If credit is the concept of ‘I get back what I loaned out, plus agreed upon interest per the agreement’
By your argument if you lend me your car and ask me to fill it with gas/replace the gas I used and I don’t, you could report my default to a CRA. Somehow I don’t think that would work.
Did you read it before replying?
For instance, I literally said a lease is ‘credit like’. Not actually credit. And that some landlords and employers might want to check your credit report before engaging with you to see how you do with credit, as they might give them useful information on how you might do in other areas they care about - not that they would report their own activities there.
The car loaner situation is also completely inapplicable to a lease - which, btw, is almost the exact same broad structure as a bond.
Possession of X is given to debtor in exchange for monthly payments of Y with some additional conditions, and in the event of default or end of term, X needs to be returned to the bond writer in whole. With optionally some funds held in escrow (security deposit) in case of default or damage to X.
It’s real property for a given time in exchange for rent of course, not a chunk of principal for time in exchange for interest, but it’s the same kind of deal.
And similar to most bonds, the full interest/rent amount isn’t paid up front. It’s done for given periods of time (a month being pretty standard).
Now one could imagine a way a car loaner could be structured so that payment of gas IS payment for the loaner, and even how it could be structured as an automobile lease. But it would require that structure no? And would be pretty ridiculous paperwork wise.
Property leases already follow that structure.
Right - leases are credit-like, somewhat. However, leaving aside the concept of eviction taking time (that to me is investment risk, not 'extending credit') - lease payments are made in advance, and when I was a tenant, every single one had a clause allowing for termination in the event that prompt payment was not made, in advance.
My objection there is that these payments should not be being reported to Credit Reporting Agencies because they're not credit.
And as supporting evidence, if they were credit, every tenant for decades would have every lease or rental agreement being reported as a matter of business. Why has that not happened? Because it's not credit. And now, some "innovative" companies are offering to work with Property Managers and landlords to offer it as a "service" to their tenants.
However, you look at things and very quickly you realize the benefit to the tenant is almost a side effect:
These services charge a fee to the tenant, a portion of which goes to the landlord (can you say kickback?), and if you look at the websites of these services, the "allow your tenants to record good payment history on their credit report" is but one bullet point. Every other bullet point talks about the benefits to you as a landlord.
You mentioned landlords doing credit checks to establish a sense of the tenant's fiscal responsibility. I think that is fine. As for evictions, damage, deposits being withheld, and so on - there's a need for that. And it exists, entirely separate to the CRAs.
This whole thread started because of one point, that I don't believe they should be able to report it as a credit tradeline, because it's not. And I still think the single biggest argument I have that that's the case is that it's only been in the last three or so years that this has been offered, when credit reporting has been around since the 1980s.
You REALLY need a lease to not be a type of credit, and hence not be within the scope of a credit reporting agency? Or included in a credit score?
Though, notably, not like anyone necessarily needs to care if it fits the nominal term on their sign if they want to take on new business right? (though various regulations can of course come into play in some cases)
Hell, a ton of their revenue now seems to come straight from 'credit monitoring' services which are only thinly veiled scams near as I can tell.
The issue I have with the argument you're making, is that as you yourself note - investment risk is fundamentally the umbrella under which credit risk lives. And that is the same umbrella that landlord/tenant risk lives under. And in fact, the risk that a landlord takes on with a tenant is SO CLOSE to the risk that someone takes on with lending someone money, that it's an ALMOST artificial distinction.
Near as I can tell mostly due to historical reasons.
Renting existed long before standardized currency (and hence the ability to loan someone currency). And since having a roof over ones head is rather fundamental to being able to survive at all in most places, the power dynamic is prone to abuse in many concrete ways unique to property.
But, for example, leasing a car is 100% tracked by credit reporting agencies on a credit report. And the difference between leasing a car and leasing a house is... the car can move? and isn't generally a primary residence for anyone. and is cheaper.
So actually aren't renters being screwed here, because paying their rent on time could actually help them build a better credit score by showing they CAN do credit-like activities on time - without having to go into 'debt'?
In fact, wouldn't it actually HELP renters move to owning (by having lower costs to borrow on their mortgage), if they could build a better credit score by renting? And it seems like companies have picked up on that, which is why they're offering it for a fee.
One of the biggest complaints I've heard from folks (and felt myself) for instance, is that paying an equivalent amount in rent does nothing to qualify oneself for paying a similar mortgage. But if reported on credit and included in credit score, it would.
So if you really don't want the credit agencies to be reporting on it, I guess the question is - why?
Too much centralization in an already too powerful set of entities?
Too much transparency in an area prone to really screw some people who have a hard time behaving? After all, the downside would be someone who can't pay their rent would also have a hard time getting a mortgage, but that generally already happens.
Too much absolutism/numericalism for something that "shouldn't be"?
Think they're a bunch of assholes who need to die?
I can see some reasons why you'd object, I'm just not buying the reason you're using on it's face. It's like saying home depot can't sell furniture because they're a 'home improvement' store, and furniture doesn't improve the home itself, but just the experience of living in it. And that no one would benefit from buying furniture there.
And besides that there are other places who specialize in selling furniture.
Which okay maybe? But perhaps you just hate Home Depot? Or maybe you own a furniture store?
I can certainly empathize if that is the case! I don't know though.
Unfortunately, they do provide a lot of value in specific situations which others are unable to do, which is why they continue to do pretty well. Lame.
It also isn't clear that them also just selling furniture and 'eating' all the local furniture stores like almost everything else they have done is anything anyone is going to work hard to stop, and maybe Home Depot is good enough.
A loan has a risk to the principal that you’ll not repay it in full. A lease has a risk to the principal that you’ll drive down the value of the property or even destroy it. Same difference, approximately.
Both have the actual cost they’ll be worth less at the end of the term than they were beforehand, due to inflation and wear/tear.
The biggest difference between a loan and a lease is that instead of them giving you x amount of $ directly (aka exclusive control of that money), they’re giving you exclusive or semi-exclusive control of an asset they value at x amount of $.
And that the asset has an address attached to it, and you can live there.
As it should be. Why would you want to allow someone to be judged for _not_ having been in debt in the past?
You can always ask for references if they rented before, that might help somewhat.