By: Kaylin Cecchini
Evaluating credit history in determining whether a rental applicant will be a “good tenant” is a relic of a racist history in housing accessibility. Credit reports have little to no predictive value for any person but have even larger and compounding complications for people of color.[1] Access to housing is a necessary foundation for achieving other goals related to food security, employment security, financial stability, and more.
Following the 1948 Supreme Court decision in Shelley v. Kraemer that outlawed racially restrictive covenants, the Federal Housing Administration created every alternative avenue imaginable to maintain segregation.[2] One of these methods included completely removing access to mainstream lenders. Fringe lenders filled this vacuum and charged exorbitant interest rates and delinquency penalties.[3] Naturally, these rates and penalties resulted in poorer performance of repayment only for the communities who had to use fringe lenders, and the data on poor performance was used to support the argument that these communities were too risky for mainstream lenders to serve. This dual lending market led to higher rates of eviction, debt collection, and other adverse financial consequences; the impacts have only compounded over generations. Poor credit scores are much more likely to be representative of the lending environment available to a borrower, rather than their actual reliability as a borrower.
Beyond the wrought racial history, credit reports fail all with respect to identifying whether someone is likely to pay rent on time. The U.S. PIRG released a report in 2004 showing that 25% of surveyed credit reports contained an error so serious as to potentially result in denial of credit.[4] Moreover, 79% of all the reports contained an error of some kind.[5] Most errors aren’t discovered until a person runs into unexpected trouble while applying for credit, and the process by which people might fix the errors is arduous and unclear. This is not nearly a sure enough system to rely on when determining whether or not to provide people with something as necessary as housing.
It is easy to assume credit is relevant to renting, but really all a landlord needs to know with respect to a renter is whether they can and will pay their rent. The experts at the National Consumer Law Center agree, credit history is hardly a way to verify this. Credit history reporting should be removed from the rental application screening process. It has already been barred from employment applications in several states; the reason is the same: why would that be relevant? Massachusetts has become the first state to offer up legislation aiming to remove it from rental screening processes.[6] NCLC had the pleasure of conducting the policy research and drafting this bill. Their talking points distributed for the bill nail the point: “Using credit data for rental housing amplifies these inequities and perpetuates them as applicants are denied housing and employment because their forebears were denied housing and employment explicitly based on race”.[7] There are many debts to be paid to communities of color across the board, but having easily identified this discrete and ongoing issue, the least that can be done going forward is making housing more accessible by eliminating this one barrier from the rental application process.
[1] Lisa Rice & Deidre Swesnik, Discriminatory Effects of Credit Scoring on Communities of Color, 46 Suffolk U. L. REV. 935 (2013).
[2] Richard Rothstein, The Color Of Law 77, 107 (2017).
[3] Lisa Rice & Deidre Swesnik, Discriminatory Effects of Credit Scoring on Communities of Color, 46 Suffolk U. L. REV. 935 (2013).
[4] Mistakes Do Happen, U.S. PIRG (June 17, 2004), uspirg.org/reports/usp/mistakes-do-happen.
[5] Id.
[6] National Consumer Law Center, An Act Relative to the Use of Credit Reporting in Housing H1429/S894, the Fair Chance in Housing Act Senator Lesser, Representative Malia, NCLC.org www.nclc.org/images/pdf/credit_reports/MA_Credit_Housing.pdf.
[7] Id.