How on-time rent payments can help ‘credit invisible’ consumers be seen

Housing is the most considerable expense for U.S. consumers — and while high rents and home prices are obstacles to saving for potential homebuyers, access to affordable credit is another significant roadblock. 

An estimated 50 million Americans are “credit invisible,” according to a 2022 fact sheet from the Office of the Comptroller of the Currency’s Project REACh, or Roundtable for Economic Access and Change. That means they don’t have a credit file and lack a credit score and, as a result, find it challenging to qualify for a mortgage, credit card or other financing.

“‘Credit invisible’ is someone who hasn’t interacted with the credit system. They either have no credit file or a thin credit file,” said Priscilla Almodovar, the CEO of the housing financing agency Fannie Mae. “So that impacts people who want to buy a home, and that could be people new to this country; it could be Black, Latinos and young people, the millennials, driving this housing demand.”

Still, consumers with thin credit files may have a history of paying rent on time — a factor mortgage financing provider Fannie Mae started to count in late 2022. Its Positive Rent Payment Reporting initiative, which has been extended through the end of 2024, allows people renting in eligible properties to have their rent payments counted by credit rating agencies at no cost. 

“We’re now able to level the playing field and make access to credit something that’s available to many more consumers,” Almodovar said. 

Having little or no credit is a major stumbling block to getting a mortgage. It also prevents consumers from getting attractive rates on all types of loans.

Rent payments can be one way to gain credit visibility.

Fannie Mae’s free program works with providers Esusu Financial Inc., Jetty Credit and Rent Dynamics. There are many other players in the market, too. Experian Boost reports rent payments for free as well as payments for utilities, mobile phones and streaming services. Other rent-reporting firms — including Boom, Rental Kharma, RentReporters and Self — also can provide your rental payments to one or more major credit bureaus for free or a modest fee by allowing access to your bank statements. 

When rent payments are included in credit reports, consumers see an average increase of nearly 60 points to their credit score, according to a 2021 TransUnion report.

Fannie Mae’s pilot program has helped more than 35,000 people establish credit scores, the agency reports. Participants who already had a credit score and saw an improvement had an average score increase of up to 40 points, according to Fannie Mae.

Florida resident Joe Grande, 56, who works as an inventory control clerk, saw a credit boost of 80 points in his first three months, to 660, after signing up for free reporting from his landlord through rent reporting company Esusu, a vendor that works with Fannie Mae. He says the program has helped keep him on track toward his goal of buying 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 said. 

Experts say the impact on your credit can be significant. “What it accomplishes for you, adding 24 on-time payments, it’s like jumpstarting your car with a truck battery,” said Martin Lynch, president of the Financial Counseling Association of America and education director at the non-profit Cambridge Credit Counseling in Agawam, Massachusetts. 

While these programs can help build credit more quickly, experts caution that it takes time to establish a track record.

It typically takes six months to create a credit profile and longer to establish a solid track record of repayment, experts say. Credit scores generally range from 300 to 850 — and lenders generally view a credit score lower than 670 as a higher risk.  

“For somebody with a 680, they’re going to be able to obtain financing, but it’s typically not going to give them access to the lowest interest rates and the best deals,” said Bruce McClary, a senior vice president at the National Foundation for Credit Counseling. 

It’s also important to carefully review the costs and terms of the rent-reporting company you want to use. While the Fannie Mae pilot provides only positive payment history to all three credit bureaus at no cost, consumers using rent reporting outside of that should clarify if there information is being reported to all three of the biggest players: Equifax, Experian and TransUnion.

“If your good payment history is being reporting to one of the three, that can be less impactful than if reported to all three credit bureaus,” said Matt Schulz, chief credit analyst at LendingTree.