CA Senators Praise Bill to Improve Access to Credit for Low-Income Tenants

Promise Zones: credit reporting pilot program receives unanimous approval from State Senate
May 22, 2019

Sacramento, CA – May 22, 2019 – California Promise Zone residents would have the opportunity to establish or better their credit by having their rent payments reported to credit bureaus under a bill advancing through the State Legislature. Senate Bill No. 619, authored by Senator Ben Hueso (D-San Diego), establishes a three-year, opt-in, rent reporting pilot program in the four California Promise Zones federally designated by the US Department of Housing and Urban Development (San Diego, Sacramento, Downtown and Southeast Los Angeles).

‘Promise Zones’ are high-poverty communities where the federal government partners with local leaders to increase economic activity, improve educational opportunities, leverage private investment, and address other priorities identified by residents in the community. In 2018, Senator Hueso’s SB 635 was signed into law to leverage Promise Zones to meet state and local community and economic development needs. SB 619 builds on past legislation by establishing a credit building program and further developing partnerships to improve some of California’s most economically disadvantaged areas.

“Access to credit is a necessity in today’s economy and individual’s credit score can be the deciding factor for everything from interest rates, loan terms, the size of their security deposit, and whether a rental application is approved or denied,” said Sen. Hueso. “In some states, an individual’s credit report can even be considered by prospective employers. Although there are many ways to establish credit, few exist for cost burdened Californians.”

Statistics show that a lack of credit impacts a large segment of our population and disproportionately affects those with low income and communities of color. Approximately 60 million US adults have credit scores lower than 650, and 53 million have no credit scores at all due to little or no borrowing history. According to the Consumer Finance Protection Bureau, 45 percent of individuals in low-income neighborhoods are ‘credit invisible’ or ‘unscorable.’ A study on subprime lending found that Black and Hispanic households are more likely to hold subprime loans and pay more overall as a result.

Currently, all three major consumer credit bureaus (Equifax, TransUnion, Experian) accept rental payments but it is estimated that less than 1 percent of credit files include rental payments. For many tenants, rent is the largest ongoing payment they make each month without receiving the credit benefit a traditional mortgage holder would receive. Organizations across the country have partnered with affordable housing developers to implement successful rent reporting programs across the country, with a 2015 pilot by Credit Builders Alliance showing 79 percent of participants reporting an increase in their credit score.

“By implementing a rent reporting program, Californians in high poverty areas will have the option of building their credit by making on time rental payments, further increasing their economic mobility and spurring access to capital,” added Sen. Hueso.

SB 619 is sponsored by the Credit Builders Alliance.