Housing is most significant cost to US consumers — and while high rents and home prices are barriers to saving for potential homebuyers, access to affordable credit is another significant barrier.
It is estimated that there are about 50 million Americans who are “credit invisible.” a 2022 flyer from the Comptroller of the Currency’s REACh Project, or the Roundtable on Access and Economic Change. That means they have no credit history and no credit score, so they find it difficult to qualify for mortgages, credit cards, or other forms of financing.
“The ‘invisible credit’ is people who have never interacted with the credit system. They either have no credit history or a thin credit history,” said Priscilla Almodovar, chief executive officer of housing finance company Fannie Mae. “So that impacts people who want to buy a home, and it could be people who are new to this country; it could be blacks, Latinos, and young people, millennials, driving this housing demand.”
However, consumers with thin credit histories may have a history of paying rent on time — a factor that mortgage lender Fannie Mae will begin taking into account in late 2022. Active Rent Payment Reporting Initiativehas been extended through 2024, allowing tenants at eligible properties charged them rent by credit rating companies at no charge.
“We can now level the playing field and make credit accessible to more consumers,” Almodovar said.
Paying rent on time can boost your credit score
Kate_sept2004 | E+ | Getty Images
Having little or no credit is a major obstacle to getting a mortgage. It also prevents consumers from getting attractive interest rates on all types of loans.
Paying rent can be a way to improve your creditworthiness.
Fannie Mae’s no-fee program is in partnership with providers Esusu Financial Inc., Jetty Credit, and Rent Dynamics. There are many others in the market. Experian Enhancement Free reports on rent payments as well as utility, cell phone, and streaming payments. More rent reporting company – include Boom, Kharma for rent, The lease And Self — can also provide your rent payment to one or more major credit companies for free or for a modest fee by allowing access to your bank statements.
When rent payments are included on credit reports, consumers see their credit scores increase by an average of nearly 60 points, according to a TransUnion Report 2021.
Fannie Mae’s pilot program has helped more than 35,000 people establish credit scores, the agency reported. Participants have had credit scores and seen improvements. has had an increase in average score up to 40 points, according to Fannie Mae.
Florida resident Joe Grande, 56, who works as an inventory clerk, saw his credit increase by 80 points in the first three months, to 660 points, after signing up for a free report from his landlord through the rental reporting company Esusu, a provider that works with Fannie Mae. He said the program has helped him stay on track to buy a home.
“It makes me feel like I’m in control, but it also makes me want to make sure everything else is paid on time,” Grande says.
Experts say the impact on your credit can be significant. “What it does for you, 24 extra on-time payments, is like jumping on a truck battery to jump-start your car,” says Martin Lynch, president of the Financial Counseling Association of America and director of education at the nonprofit Cambridge Credit Counseling in Agawam, Massachusetts.
But temper your expectations.
While these programs can help build credit faster, experts warn that it takes time to establish a track record.
Experts say it typically takes six months to build a credit profile and longer to establish a solid credit payment history. Credit score typically ranges from 300 to 850 — and lenders typically consider credit scores lower than 670 to be a higher risk.
“People with a score of 680 will be able to get loans, but they typically won’t get the lowest interest rates and the best deals,” said Bruce McClary, senior vice president of the National Foundation for Credit Counseling.
It’s also important to carefully consider the costs and terms of the rental reporting company you want to use. While Fannie Mae’s pilot program provides a positive payment history to all three credit bureaus at no cost, consumers using an outside rental reporting company should check to see if their information is reported to all three of the largest companies: Equifax, Experian, and TransUnion.
“If your good payment history is reported to one of these three, the impact will likely be less than if it is reported to all three,” said Matt Schulz, chief credit analyst at LendingTree.
