More Americans could potentially qualify for home loans if their credit scores were boosted by adding on-time apartment rental payments.

The concept of integrating a consumer's rental history into loan applications is gaining momentum among housing finance analysts and business leaders. Adoption would require widespread cooperation from landlords, multifamily property managers, major credit bureaus and policymakers, but in the long run, the idea is designed to turn more renters into homeowners.

During a panel event in Washington, D.C., researchers from the Urban Institute said factoring in rental history particularly helps Americans with no credit history or people with scores slightly below what traditional mortgage lenders want.

For most consumers, the journey toward homeownership begins with a mortgage pre-approval from a bank. But lenders rely heavily on an applicant's credit score before deciding on approval, panelists said at the event last week. Many Americans have a positive rental payment history but their poor credit score stands in the way of owning a home, they added.

"Credit history, as you know, is one of the most frequently mentioned reason for mortgage denial," said Jung Hyun Choi, an Urban Institute researcher. "But by including rental payment history, we could make huge progress in expanding the access to homeownership among communities that really have faced challenges throughout our history."

Rent payments are not included in credit scores because those payments have historically not been reported to the nation's three major credit bureaus — Equifax, Experian and TransUnion — unless a consumer falls delinquent. Mortgage lenders often use a consumer's VantageScore or FICO score, neither of which include rental history in their calculations. The three major credit bureaus would have to tweak their score formulas to accommodate rental history.

From the Homes.com blog: What Credit Score Do You Need to Buy a House?

Equifax, Experian and TransUnion didn't immediately respond to requests to comment about rental history from landlords in their scores. But the Consumer Data Industry Association, their representing trade group, said in an email that the firms are working toward that goal but "widespread adoption of rent reporting will take time and requires broader participation from data furnishers."

The association added that “while there are more than 44 million households renting in the U.S., rental payment reporting remains one of the most underused tools for building credit history. Rent is the single largest monthly expense for many households, yet many responsible renters don't receive credit for on-time payments. Long-term, however, we believe that rent reporting can help more Americans to achieve homeownership and generational wealth, as well as create a more equitable economy."

To be sure, increasing the number of mortgage-ready Americans would in turn increase buyer competition in a nation that's already facing a severe housing shortage. But climbing home prices have forced countless Americans to remain as renters and, in doing so, rents have soared as well.

Still, Choi and other researchers said there's a growing number of studies that suggest adding rental history would boost credit scores enough to make some Americans more mortgage ready. A 2019 pilot program from investment bank Goldman Sachs found that some consumers added rental history to their credit scores and saw a 42-point improvement. A similar program from mortgage giant Fannie Mae found that 58% of participants saw their scores increase by up to 40 points.

Bilt Rewards, a credit card company that allows apartment tenants to pay their rent and earn perks, allows consumers to opt in and share their payment histories with the credit bureaus.

A simulated study from Bilt this year applied one year of on-time payments to a small group of renters on the Bilt platform. Adding that rental history showed possible scenarios where renters with credit scores between 300-499 would see a 19-point increase on their FICO score and renters with scores between 660 to 850 saw a 2-point jump.

The Bilt research suggests not everyone will see large credit score hikes by adding rental payments, but it's worth offering for those who would really need the help, said Jonathan Lawless, the company's vice president for homeownership.

"The big changes are not happening as much as we hoped," Lawless said during the panel. "They happen, but they're not common. It's not 40-point improvements, but it's an improvement for some."