Although credit reporting has been in use for sixty years, it has not yet been fully applied in the self storage industry, except in limited circumstances where post sale collection deficiencies have been sent to collection agencies who try to post the debt with the credit reporting agencies. Now, self storage facilities will have the opportunity to join other real estate sectors in the ability to offer regular payment reports to credit agencies, thereby offering their tenants the ability to either enhance their credit or damage their credit based on their monthly payment decisions.
Basically, another way to say it is that self storage operators will have the opportunity to rise to the same level of consideration from their tenants that they now give to their phone carrier and mortgage company. The failure to pay on time will not only subject them to the risk of loss of their stored property, but now will have an impact on their credit standing.
With ongoing credit reporting, a tenant’s recognition that their rent payments will impact their credit score has been shown to dramatically reduce tenant delinquencies and the costs associated with those delinquencies, including the intangible costs associated with management frustration and stress arising from handling tenant defaults. The focus ultimately is that by connecting rent payments with monthly credit reporting, a tenant may never default for risk of having the late payment impact their credit score. Under the current system, a tenant can wait indefinitely to pay- even up to the time of sale- and there is no impact on their credit report.
As a model of success, we can look to the direct impact that credit reporting had on home-owners associations and bad debt arising from homeowner’s that were late or failed to pay their membership fees. As a result of a shift toward credit reporting on the homeowners in the association, HOA’s using credit reporting reported a 12% decrease in past due balances in the first three months of reporting and a 35% decrease in past due balances over a twelve month period.
Ultimately, the credit reporting movement is consumer focused and contributes toward rewarding customers who pay their rent on time while creating a direct disincentive to customers who are paying late. At the end of the day, the enforcement of a lien on a tenant’s stored goods and even the sale of those goods may not be as impactful to a customer whose credit score is lowered by reporting the lack of payment. On-time payments are rewarded with positive points, late payments will result in a negative impact.