A lasting effect of the 2008 economic downturn has been the impact on home buying behavior. Current U.S. homeownership rates remain at a nearly two-decade low of ~ 64% while 2004-14 represented the strongest 10-year stretch of rental growth since the late 1980s.

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In light of a sustained economic recovery and a strong job market, many economists point to behavioral shifts to explain the sluggish home market. Changing demographics, including a growing minority population (who historically have had fewer assets and low property ownership rates) as well as the tendency of young adults to get married and have children later in life have contributed to the trend. The most dominant and persistent factor, however, has been the tightening of credit to prospective home buyers.

Properly Underwriting Renters Requires New Data Sources

While information on homeowners is abundantly available in the credit system, access to rental payment behavior is scarce due to thin and fragmented reporting. Our research shows that renters are 7 times more likely to be unscorable at a credit bureau than a homeowner – resulting in a higher decline rate for credit.

In the absence of rental coverage information, alternative data can step in. We have found that if someone lives in a rental property and has stayed there uninterrupted for an extended period of time, they are likely making regular rent payments. These consumers are 1/5th less likely to default than those with less stable address histories.

FI-thumbDownload the graphic to learn how consumers who rent their place of residence can benefit from this and other alternative data when rental payment history is not available.

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