Housing is the greater cost to US consumers — and while high rents and home prices are barriers to saving for potential homebuyers, access to affordable credit is another major barrier.
An estimated 50 million Americans are “invisible,” according to 2022 newsletter from the Office of the Comptroller of the REAch Coin Project or Roundtable on Economic Access and Change. This means they have no credit history and no credit score, making it difficult for them to qualify for a mortgage, credit card or other financing.
“‘Credit invisible’ is someone who has not interacted with the credit system. They either have no credit or a thin credit,” said Priscilla Almodovar, chief executive officer of housing finance company Fannie Mae. “So that affects people who want to buy a home, and those could be young people in this country; it could be blacks, Latinos and young people, the millennials, who are driving that housing demand. “
However, consumers with poor credit records may have a history of paying rent on time — a factor that mortgage lender Fannie Mae began measuring in late 2022. Positive Rent Payment Reporting Initiativewhich has been extended until the end of 2024, allows people renting in eligible properties to have their rent payments calculated by credit rating agencies at no cost.
“We are now able to level the playing field and make access to credit something that is available to many more consumers,” said Almodovar.
On-time rent payments can boost credit scores
Kate_sept2004 | E+ | Getty Images
Having little or no credit is a major barrier to getting a mortgage. It also prevents consumers from getting attractive interest rates on all types of loans.
Rent payments can be a 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 it reports rent payments for free as well as payments for utilities, cell phones and streaming services. Other rental reporting companies — incl Antenna, Rent Kharma, RentReporters and Self — may also provide your rental payments to one or more major credit bureaus for free or a modest fee, allowing access to your bank statements.
When rent payments are included on credit reports, consumers see an average increase of nearly 60 points to their credit score, according to TransUnion Report 2021.
Fannie Mae’s pilot program has helped more than 35,000 people build credit scores, the agency says. Participants who already had a credit score and saw improvement had an average score increase up to 40 points, according to Fannie Mae.
Florida resident Joe Grande, 56, who works as an inventory control clerk, saw his credit score boost by 80 points in his first three months, to 660, after signing up for a free landlord report through rental reporting company Esusu, a vendor who works with Fannie Mae. He says the program has helped him keep 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 gets paid on time,” Grande said.
Experts say the impact on your credit can be significant. “What it does for you, adding 24 on-time payments, is like starting your car with a truck battery,” said 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 build a history.
It typically takes six months to build a credit profile and longer to build a solid repayment history, experts say. Credit scores generally range from 300 to 850 — and lenders generally consider a credit score below 670 to be a higher risk.
“For someone with a 680, they’re going to be able to get financing, but it’s usually not going to give them access to the lowest rates and the best deals,” said Bruce McClary, senior vice president at the National Foundation. for Credit Counseling.
It is also important to carefully check the costs and terms of the rental reference company you wish to use. While the Fannie Mae pilot only provides positive payment history to all three credit bureaus at no cost, consumers using rental reports outside of it should clarify whether information is reported to all three major players: Equifax, Experian and TransUnion.
“If your good payment history is reported to one of the three, it may have less of an impact than if it’s reported to all three credit bureaus,” said Matt Schulz, chief credit analyst at LendingTree.
