In the United States, housing stands as one of the most significant expenses for consumers. While high rents and home prices pose significant obstacles for potential homebuyers, access to affordable credit remains as another major roadblock. An estimated 50 million Americans are categorized as “credit invisible,” meaning they lack a credit file and credit score, making it difficult for them to qualify for mortgages, credit cards, or other financing options. This lack of credit history impacts a wide range of individuals, including those who are new to the country, Black and Latino individuals, as well as young people, particularly millennials.
For individuals with thin credit files, who may have a history of paying rent on time, there is a glimmer of hope through Fannie Mae’s Positive Rent Payment Reporting initiative. This program, which began in late 2022 and has been extended through 2024, allows rent payments from eligible properties to be counted by credit rating agencies at no cost. By including rent payments in credit reports, consumers have the opportunity to increase their credit scores significantly. In fact, a 2021 TransUnion report found that consumers saw an average increase of nearly 60 points in their credit score when rent payments were factored in.
Fannie Mae’s rent reporting initiative has already made a positive impact on many individuals. Joe Grande, a 56-year-old Florida resident working as an inventory control clerk, saw his credit score jump by 80 points within three months of signing up for rent reporting through Fannie Mae’s vendor, Esusu. This boost in credit score has put Grande on the path towards achieving his goal of homeownership. The program not only provides individuals with better credit scores but also encourages responsible financial behavior, such as making on-time payments.
Rent reporting is not only limited to Fannie Mae’s initiative, but there are several other programs available that can help individuals build their credit histories. Companies like Experian Boost, Boom, Rental Kharma, RentReporters, and Self offer services to report rental payments to credit bureaus. These programs have proven to be successful in helping individuals establish credit scores and improve their overall financial health. It’s important to note that while these programs can accelerate the credit-building process, establishing a solid credit track record takes time.
Credit scores range from 300 to 850, with scores lower than 670 typically viewed as higher risk by lenders. Individuals with credit scores below 670 may face challenges in obtaining financing at the best rates and deals. Bruce McClary, a senior vice president at the National Foundation for Credit Counseling, emphasizes the importance of understanding one’s credit score and working towards improving it to access better financial opportunities.
While rent reporting can be beneficial, individuals should carefully review the costs and terms of the program they choose to use. It is crucial to ensure that the rent payment information is reported to all three major credit bureaus – Equifax, Experian, and TransUnion – to maximize its impact on credit scores. Matt Schulz, chief credit analyst at LendingTree, advises consumers to verify that their payment history is being reported to all three bureaus for the most significant benefit.
The journey to homeownership for many individuals begins with overcoming credit invisibility. Through innovative programs like Fannie Mae’s Positive Rent Payment Reporting initiative and other rent reporting services, individuals can build credit histories, improve credit scores, and ultimately work towards achieving their dream of owning a home. By understanding the importance of credit visibility and taking proactive steps to establish a solid credit track record, individuals can pave the way towards a brighter financial future.
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