This article has been contributed by Sarika Shetty, CEO and co-founder of RentenPe
Every month, approximately 30% of India pay rent diligently, without fail. They
have varied profiles – some are students, some new graduates while some are
seasoned professionals with families. Rent, for them, is their biggest recurring
expense. However, this expense has so far been seen only as an expense – that
too, something that’s totally ignored by the financial ecosystem. While the banks,
financial institutions and credit bureaus count credit card payments and loan
repayments as a credit metric, rent payments are totally ignored. Hence, first-
time borrowers or those without credit cards are at a disadvantage and are often
without access to loans, including home loan. However, such a system is ripe for
change. And there is an effort to give rent payment the recognition it deserves.
Why Traditional Credit Systems Ignore Rental History
The current credit system evaluates financial reliability based on credit card and
loan repayments. A score, usually above 750, serves as a ticket to better loan
offers and lower interest rates. However, there’s a significant drawback: rent
payments are not categorized as a parameter. Rather, they are seen as
operational expenses. So you might be paying a rent of INR 1 lakh per month or
even INR 5 lakhs, that too consistently, it would still not be recognised as a credit
parameter.
Neither would your CIBIL score improve with every timely rent
payment. This creates an unfair situation. A young professional who has wisely
handled their biggest expense for years may still be considered ‘credit invisible’.
When they seek a home loan, the evaluation will rely on limited parameters such
as credit card usage, which unfairly punishes them for not having debt. What
makes the situation worse is the informal nature of the Indian rental market.
Many landlords accept full or part cash payments for rent or through unregulated
bank transfers, preventing credit bureaus from gathering reliable information.
There is no centralized and reliable data source tracking rent payments. This
obscures a crucial part of the borrower’s story.
How Can Rent Payments Build Financial Credibility?
Imagine a scenario where your consistent rent payments enhance your financial
profile. That is what the Rent Credit Score does. A Rent Credit Score is built by
tracking the rent payment data of a tenant. When a tenant pays rent through a
verified digital method or through a bank transfer, the transaction is recorded.
This transaction is then counted as a parameter to build the Rent Credit Score. For
renters, it provides a substantial, tangible motivation to uphold financial
accountability.
A strong Rent Credit Score can serve as a pathway to better
financial offerings. A diligent tenant with a three-year rental history could be
eligible for a mortgage with a lower down payment or a more favourable interest
rate, turning the dream of owning a home into a reality much quicker. This would
represent a significant change for millions of urban Indians, particularly young
professionals and migrant workers, who often do not have a solid formal credit
history.
For this to realise its objective, it is necessary to partner with credit bureaus,
digital payment services, and banks. For banks and lending organizations, this
information provides a clearer and more detailed perspective on a borrower’s
financial reliability. Consistent rent payments often act as a better indicator of a
person’s cash flow management and long-term financial commitment than
sporadic credit card usage. This enables financial institutions to offer loans with
greater confidence to a wider array of applicants, minimizing risk and expanding
their customer base. It’s a mutually beneficial scenario: tenants gain the
opportunity for an improved financial future, while lenders enjoy a stronger and
more varied borrower pool.
Muskaan Kapoor
Global Precedents and India’s Opportunity
While the Rent Credit Score is still a nascent concept in India, countries like the
United States, Canada and the United Kingdom have already taken the lead in
establishing rent reporting systems. In the US, various services collaborate with
landlords to send rent payment data to major credit bureaus. Likewise, the UK has
similar systems that enable tenants to enhance their credit history through their
rent payments.
These international examples provide a clear and effective model for India to adopt. Our country’s unique digital infrastructure gives us a significant edge. The widespread use of UPI and the Aadhaar-linked identity system creates
the perfect foundation for a secure and uniform rent reporting system. There is
potential for collaboration between the government and the private sector to
formalize rent transactions and establish a verifiable data trail.
It’s time for India to stop viewing rent as an invisible expense. By formalizing Rent
Credit Scores, we are not just implementing a new metric; we are unlocking the
financial potential of numerous individuals, turning a generation of responsible
tenants into a new wave of proud homeowners. This is a vital step towards
building a more equitable and financially inclusive India.
Souvik Dey