Housing is the single most important expense for U.S. consumers—and while high rents and housing prices pose obstacles to saving for potential homebuyers, access to affordable credit is another major hurdle.
A 2022 fact sheet from the Office of the Comptroller of the Currency, the Roundtable on Economic Access and Change (REACh), estimates that about 50 million Americans are “credit invisible.” That means they have no credit profile and no credit score, and as a result, they have difficulty qualifying for a mortgage, credit card, or other financing.
“The ‘invisible credit’ is someone who has not interacted with the credit system. They either have no credit or a poor credit profile,” said Priscilla Almodovar, CEO of Fannie Mae. “So this is impacting people who want to buy a home, and they may be new to this country; they may be blacks, Latinos, young people, millennials, who are driving this demand for housing.”
However, consumers with poor credit may have a history of paying rent on time — a factor that mortgage finance provider Fannie Mae began taking into account in late 2022. The Positive Rent Payment Reporting Initiative, which has been extended through the end of 2024, allows people who rent in eligible properties to have their rent payments counted by credit rating agencies at no cost.
“We are now able to level the playing field and make access to credit available to more consumers,” Almodovar said.
Paying rent on time can boost your credit score.
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Poor or no credit is a major obstacle 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 several other players in the market as well. Experian Boost reports rent payments for free, as well as utility payments, cell phones, and streaming services. Other rent reporting companies — including Boom, Rental Kharma, RentReporters, and Self — can also submit your rent payments to one or more major credit bureaus for free or for a modest fee by allowing access to your bank statements.
When rent payments are included in credit reports, consumers see an average increase of about 60 points in their credit score, according to a 2021 TransUnion report.
Fannie Mae says its pilot program has helped more than 35,000 people improve their credit scores. According to Fannie Mae, participants who already had a credit score and saw their scores improve saw their average score increase by up to 40 points.
Florida resident Joe Grand, 56, who works as an inventory control clerk, saw his credit score jump 80 points in the first three months, to 660, after signing up for free reports from his landlord through rental reporting company Esusu, a company with Fannie Mae. He says the program has helped him stay 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 gets paid off on time,” Grande said.
The impact on your credit can be significant, experts say. “Adding 24 on-time payments is like jump-starting your car with a truck battery,” says Martin Lynch, president of the American Financial Counseling Association and director of education at the nonprofit Cambridge Credit Counseling in Agawam, Massachusetts.
But lower your expectations.
While these programs can help build credit more quickly, experts caution that it takes time to build a track record.
Experts say it typically takes six months to build a credit file and longer to establish a history of repayment. Credit scores generally range from 300 to 850 — and lenders generally view a credit score below 670 as a higher risk.
“For someone with a 680, they will be able to get financing, but it usually won’t give them access to the lowest interest rates and the best deals,” said Bruce McClary, senior vice president at the National Credit Counseling Foundation.
It’s also important to carefully review the costs and terms of the rental reporting company you want to use. While Fannie Mae’s pilot program only provides positive payment history to all three credit bureaus at no cost, consumers using rental reporting outside of that should clarify whether their information is being reported to all three big players: Equifax, Experian, and TransUnion.
“If your good payment history is reported to one of the three credit bureaus, the impact may be less than reporting to all three credit bureaus,” said Matt Schultz, senior credit analyst at LendingTree.
