Residents in California will soon see a change in their renting experience: paying rent on time can help build their credit scores.
Last Thursday, Governor Gavin Newsom signed Assembly Bill 2747 (AB2747) into law, which requires landlords to offer an option for tenants who pay rent on time to have their timely payments reported to credit agencies, thus helping tenants improve their credit scores.
The new law applies only to landlords with 15 or more housing units, affecting an estimated 17 million renters in California. Small landlords and affordable housing development projects are exempted.
AB2747 is set to take effect in 2025. Tenants renting after April 1, 2025, can legally request landlords to help submit “on-time payment” reports. Tenants can also request in writing to stop the reporting, but changes cannot be made for at least six months after stopping.
On the landlord’s side, they can charge tenants a service fee for helping submit reports, up to a maximum of $10 per month. If a tenant opts to use the service but fails to pay the fee within 30 days, the landlord can stop the service.
Supporters of the AB2747 bill argue that defaulting on rent can negatively impact credit, yet paying rent on time typically does not have a positive effect on credit scores, which they see as unfair. The new law will change this, especially helping renters without traditional credit records to build a good credit history.
The bill’s author, Assemblymember Matt Haney, stated that credit records are essential in people’s daily lives, whether it’s applying for credit cards, buying cars, or renting, all requiring a credit check. He believes tenants who pay rent on time should not miss the opportunity to build a credit history.
“Many tenants allocate most of their income to rent and prioritize rent payment over all other monthly expenses, yet their on-time payments are never reflected in their credit scores,” Haney expressed his gratitude to the governor for signing the new law.
However, there are also many opponents to the AB2747 bill, including tenant rights advocates and groups, with even some tenants expressing cautious and reserved attitudes toward the new law.
The California Rental Housing Association believes the law will bring financial burdens to landlords. Most landlords in California cannot provide their tenants’ rent payment information to just one credit agency. According to the new law, landlords must go through a complex application and approval process, which most landlords cannot afford.
Tenant and consumer rights advocacy groups are concerned that the “on-time payment” reports could also pose risks, as nobody knows how credit agencies will view and calculate the credit scores based on them. They also worry that the new law might become a double-edged sword, causing landlords to have greater biases against tenants without “on-time payment” reports or with low credit scores.
In fact, as early as 2020, California had passed a similar law requiring landlords with 15 or more government-subsidized affordable housing units to provide tenants with the option for rent payment reporting, but research found that the acceptance rate among tenants was not high.