Closing Wealth Gaps by Increasing Access to Credit: A Conversation with Self Financial

At TransUnion, we’re committed to creating pathways for inclusive and equitable participation in the modern economy. Tracie Anderson, Economic Inclusion Strategy Leader at TransUnion, recently sat down with Kristian Lund, SVP, Rent and Bills Reporting at Self Financial to learn how rent payment reporting serves as a potential game changer for driving financial inclusion — and how companies can continue promoting economic empowerment and equity for consumers in the global marketplace.

Tracie: Kristian, thanks for talking today. Can you tell us about Self and the impact you’re making?

Kristian: Self Financial has a really simple mission; we believe everyone should have the ability to improve their financial future. And when we say everybody, we mean everybody, including the underserved and the underbanked — those who are typically left outside of our financial system.

Our company started when Self’s founder, James Garvey, had the unfortunate experience of having his credit tank when he missed a payment on one of his credit cards. After researching how to increase his credit score, James saw an opportunity to take an established product offered by some banks called a credit builder loan, which enables people to put away savings and report those payments on a monthly basis to build a credit history, and offer that product at scale using technology. Self grew from there, adding a secured credit card that enables consumers to take savings from loan payments and apply that as a credit limit — promoting a much more controlled, manageable way to spend on a credit card.

Tracie: Self’s mission is why we are having this conversation today. According to a 2020 Federal Reserve study, the average homeowner’s net worth in 2019 was $255,000, while the average renter’s net worth in 2019 was $6,000 — a drastic gap.  One barrier for these renters to become homeowners is lack of access to credit. Closing these gaps by making credit more accessible is important, and it’s one reason we appreciate working with Self. Can you share about the ways Self is empowering consumers to gain greater access to credit? 

Kristian: People need credit to get access to credit, and it’s a hard cycle to break. Sometimes consumers don't even know how or where to start, and so much of our financial system requires you to take on debt to build a credit history and show credit worthiness, which consumers may not have the means to do. 

It’s no secret that this year is particularly tough for many people. In fact, in a recent survey of more than 7,000 Self customers, nearly 65% said they feel more financial pressure this year than last. That’s part of why Self just launched rent reporting for free! It gives consumers a way to strengthen their financial foundation using their biggest monthly expense. Self reports rent payments to all three credit reporting agencies and only reports positive payments. And the great thing is anyone who is a renter can sign up directly at no cost.

Self will still offer a bundle that combines rent and utility payment reporting for a monthly fee, and another service that applies two years of rent and utility payment history to your credit. 

Tracie: Can you talk more about the benefits of alternative credit reporting?

Kristian: The beauty of rental, telecommunications and utility reporting is that they’re not debt based. People need to live somewhere, and many pay rent. As of 2021, over 95% of Americans have a cell phone, and oftentimes renters also have to pay electric, gas or water — sometimes all three. None of these payments are debt-based, and many consumers make these payments, so why not get the credit they deserve from making them? I think the key here is making people aware, and helping ensure those who use this information are able to effectively access it and make it part of their risk-based pricing decisions.

A recent TransUnion study found that 80% of Gen Z who had their rent reported saw a positive outcome. These populations are seeing positive results and impacts in their lives, and it shows why rental payment reporting is an important part of promoting financial inclusion.

Tracie: I agree. Going back to the net worth disparity, if we can move the needle and help consumers build their credit history, they may have greater and more equitable access to credit to achieve their dreams — whether it's homeownership, car ownership, entrepreneurship or anything else that they may desire.

I also think there are many roles for people to play with respect to rental payment reporting, from data reporters such as landlords to payment processors, lenders and consumers themselves. What actions do you encourage these stakeholders to take?

Kristian: Absolutely, there are many roles with respect to rental payment reporting.

• Consumers can use direct rent reporting services (even better if it’s free!) and they can reach out to their landlords to find out if they’re reporting rental data. As long as the consumer is making verifiable payments every month, Self should be able to help them.

• Landlords play a critical role, too. They can report to a data furnisher like Self that offers rent reporting so tenants' rent payments are reported to TransUnion and the other major credit reporting agencies.

• On the lender side, Self is starting to see these stakeholders look at rental payments. Fannie Mae and Freddie Mac are starting to incorporate rent into their risk-based pricing, and I’ve spoken with several large banks that are taking it into account.

• Our state and federal agencies have a role to play as well. Self works with states like California, Colorado and Delaware who are offering rental data reporting for low-income housing and are working to build awareness for consumers.

This is the outcome Self strives for — one where stakeholders collaborate together and continue encouraging banks and lenders to use alternative data in their decision-making. The quicker this is accomplished, the greater the likelihood that underbanked and underserved consumers enter the financial mainstream.

Tracie: Thank you, Kristian; our conversation hits at the heart of why TransUnion is committed to financial inclusion. By empowering consumers with more options to build their credit history, TransUnion provides lenders with greater intel to help increase access to more equitable credit for more consumers.  

For more information about Self Financial, please visit their website. To learn about TransUnion’s commitment to financial inclusion, click here.