One of the major obstacles that potential homebuyers face in the United States is the lack of access to affordable credit. According to a 2022 fact sheet from the Office of the Comptroller of the Currency’s Project REACh, an estimated 50 million Americans are considered “credit invisible”. These individuals do not have a credit file or a credit score, making it difficult for them to qualify for a mortgage or other types of financing. This lack of credit visibility disproportionately affects certain groups, such as people new to the country, Black, Latino, and young individuals.
In an effort to address the issue of credit invisibility, Fannie Mae launched the Positive Rent Payment Reporting initiative in late 2022. This program allows individuals with thin credit files to have their rent payments counted by credit rating agencies at no cost. By including rent payments in credit reports, consumers can see an average increase of nearly 60 points to their credit score. Fannie Mae’s pilot program has already helped more than 35,000 people establish credit scores, with participants experiencing score increases of up to 40 points.
One example of the positive impact of rent reporting is Joe Grande, a 56-year-old inventory control clerk from Florida. After signing up for free reporting from his landlord through rent reporting company Esusu, Grande saw an 80-point increase in his credit score in just three months, reaching 660. This boost has motivated Grande to stay on track towards his goal of buying a home and has given him a sense of control over his finances.
While programs like Fannie Mae’s Positive Rent Payment Reporting initiative can help individuals build credit more quickly, it is important to recognize that establishing a solid track record takes time. Experts recommend allowing at least six months to create a credit profile and even longer to demonstrate a consistent pattern of repayment. This track record is crucial, as lenders generally view credit scores below 670 as higher risk.
When considering using a rent reporting company to improve credit visibility, consumers should carefully review the costs and terms involved. While the Fannie Mae pilot program offers free positive payment history to all three major credit bureaus, individuals utilizing rent reporting outside of this initiative should confirm whether their information is being reported to Equifax, Experian, and TransUnion. Reporting to all three bureaus can have a greater impact on one’s credit score.
Overall, the importance of credit visibility in the housing market cannot be overstated. By including rent payments in credit reports, individuals with thin credit files can gain access to affordable credit and improve their chances of qualifying for a mortgage or other types of financing. While it may take time to establish a solid credit history, the long-term benefits of improved credit visibility make it a valuable investment in one’s financial future.