Do you know how to go about reporting tenants’ payment histories to the four credit bureaus? As a property manager, adding this knowledge to your arsenal helps you educate past-due customers as to the long-term effects of their payment behaviors.
It also helps you prepare new tenants with the consequences of late payments to your organization. In this case, if you and they know you’re reporting tenants to credit bureaus, knowledge is definitely power.
Why not consider a collection agency?
A professional collections firm is certainly an option to consider. But there are significant differences between collections and credit reporting when considering cost and long-term impact. With a collections agency, the property owner or manager pays the agency a set fee or percentage of the amount collected from the tenant. The account is subsequently charged off the books of the property owner or manager as a loss.
What does this mean for the consumer? First, the collection agency will report the account to the credit bureaus. This debt will appear as a collection on the tenant’s credit report, instantly impacting their credit score. And, of course, this will be a negative item on the credit report for seven years from the date of the first missed payment.
If the tenant makes payments to the collection agency and pays the balance in full (usually including a fee from the collection agency), the agency will report this information as well. Paying a collections account may have a lesser impact on a credit score, but the item will still be reflected on the report.
Another benefit of reporting tenants
There is another important, but often overlooked, aspect of this process. When an account is reported to the bureaus as a collection, it can never be anything but that—a collection. Datalinx recommends another alternative. Consider foregoing the collection agency and reporting the past due account to the bureaus as delinquent. This is especially effective in cases where you believe the relationship with the tenant is repairable.
Why? A delinquent, or late, payment has a less negative impact on a tenant’s credit report than a collection, especially when the delinquent account is later paid in full. Offering this option to a tenant also gives you leverage. You can urge the tenant to pay to avoid a much more detrimental impact on their credit. You lose that leverage when you turn over an account to a collections agency.
Credit is King…or Perhaps the Ace
With a credit reporting service like Datalinx in your rental or leasing toolbox, you hold the proverbial ace in the hole when it comes to persuading your tenants to pay on time. For those who care about their credit score, reports of consistent, on-time payments is an unexpected bonus. Credit reporting will help these tenants increase credit scores and build a solid, long-term history.
This may also nudge those on-the-fence folks to pay earlier instead of waiting until the last possible minute. And for the others, your Datalinx account allows you to report negative items while maintaining leverage to collect past due funds. Plus, you achieve all of this without paying fees to a collection agency.
With Datalinx, you hold all the cards.
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