Housing constitutes a significant expense for consumers in the United States, yet high rents and home prices are not the only obstacles preventing potential homebuyers from saving money. Another major roadblock is access to affordable credit. An alarming statistic reveals that approximately 50 million Americans are considered “credit invisible,” as reported by the Office of the Comptroller of the Currency’s Project REACh. This means that these individuals do not have a credit file, lack a credit score, and consequently struggle to qualify for a mortgage, credit card, or other types of financing. The CEO of Fannie Mae, Priscilla Almodovar, defines a “credit invisible” as someone who has not engaged with the credit system, either due to the absence of a credit file or a minimal credit history. This issue particularly affects individuals who are new to the country, as well as Black, Latino, and young consumers, such as millennials, driving the demand for housing.
Despite having thin credit files, consumers may have a history of making timely rent payments, which could potentially influence their creditworthiness. Fannie Mae introduced its Positive Rent Payment Reporting initiative in late 2022, which allows individuals renting in eligible properties to have their rent payments incorporated into their credit reports by credit rating agencies at no additional cost. This initiative aims to level the playing field and broaden access to credit for a larger number of consumers. By including rent payments in credit reports, consumers can experience a substantial increase in their credit scores, with an average rise of nearly 60 points, according to a 2021 TransUnion report. Fannie Mae’s program has been successful in assisting over 35,000 individuals in acquiring credit scores. Participants who were already in possession of a credit score witnessed an average increase of up to 40 points. One beneficiary, Joe Grande, a 56-year-old Florida resident, saw his credit score soar by 80 points to 660 within the first three months of enrolling in a rent reporting program provided by his landlord through Esusu, a vendor working in collaboration with Fannie Mae. Grande emphasizes that this program has played a vital role in helping him progress towards his goal of homeownership.
Rent reporting programs can serve as a catalyst for building credit quickly, as they enable consumers to demonstrate a positive payment history. However, it is essential to recognize that establishing a credit profile and a solid repayment track record takes time. According to experts, it typically requires at least six months to create a credit profile and even longer to establish a robust repayment history. Credit scores generally range from 300 to 850, and lenders typically regard a credit score below 670 as a higher risk. While programs like Fannie Mae’s rent reporting initiative can facilitate access to financing, individuals with credit scores below 680 may not qualify for the most competitive interest rates and deals. It is crucial for consumers to carefully review the costs and terms of rent reporting companies they intend to utilize. While Fannie Mae’s pilot initiative offers free positive payment history to all three major credit bureaus, individuals using other rent reporting services should ensure that their information is reported to Equifax, Experian, and TransUnion simultaneously. Failure to report payment history to all three bureaus could diminish the impact on one’s credit profile, as explained by Matt Schulz, chief credit analyst at LendingTree.
Credit visibility plays a pivotal role in the homebuying process, and initiatives like rent reporting programs can significantly enhance individuals’ creditworthiness. By incorporating rental payments into credit reports, consumers can boost their credit scores and increase their chances of qualifying for favorable financing options. However, it is essential for individuals to understand the nuances of credit reporting and diligently monitor their credit profiles to ensure financial stability and access to future homeownership opportunities.