According to a Harvard University study, more than 43 million households rent their homes in the United States. Some rent out of necessity. Others rent because they do not want the maintenance issue associated with owning their home. Others, such as residents in Miami, New York, and San Francisco, have few options. The Harvard study showed that “renters are more likely than owners to be young, low income, and single.”
One of the most significant issues for renters is that paying your rent does little or nothing for your credit score. Ironically, if you own a 2 acre home in Sioux Falls, SD, you might be servicing a $150,000 mortgage with a $1,400 monthly fee. Your credit bureau would reflect your payments. In contrast, if you had a $4,000 rental in San Francisco, your credit score would ignore the fact that you carry the debt each month.
Here is where a new credit card comes into play. The WSJ reports on a new credit card aimed at the rental market. The claim is that the card solves the most significant issue for renters: landlords do not typically accept credit cards for payment or charge a 3% fee to offset processing costs.
- Bilt Technologies Inc., a real-estate startup, is joining with Evolve Bank & Trust and Mastercard Inc. to launch a credit card designed for renters. Users can accumulate rewards points through rent and another spending, with no fees charged to the tenant or the landlord when paying rent on the card, according to Bilt.
- Many landlords already accept credit cards, but they typically pass on processing fees to renters, totaling about 3%. For landlords that don’t accept plastic, Bilt says it will mail landlords paper checks on behalf of the tenant, then charge the renter’s credit card account, with no fee.
- According to Bilt, the partnership can afford to offer no-fee rent payments because of the fees that Evolve and Mastercard will collect from all other types of spending on the card. The card program also attempts to incentivize non-rent expenditure by increasing the rewards for rent when cardholders spend more on everything else. Mastercard declined to elaborate further on how it will profit from the card without fees on rent payments.
The WSJ is somewhat early in its reporting. A search of Bilt Technologies, Evolve Bank and Trust, and the CFPB could not find the official terms and agreement. It will be interesting to watch, however.
Statistica reports that the average two-bedroom apartment in the United States rents for $1,101 monthly. That means if the consumer were to use their card monthly, someone would be on the hook for $19.82 in monthly transaction costs, assuming 1.8% interchange. Start doing the math and multiply 12 months, and you have $238 in annual fees, then consider 5% penetration of 43 million units, and we’re up to potentially $2.1 billion in interchange.
It is hard to see how this card could displace a good-old Discover iT card or a Chase Freedom, but stranger things have happened. In the meantime, start saving for a house!
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
