WASHINGTON, D.C. — Housing is the most considerable expense for U.S. consumers, and while high rents and home prices pose significant obstacles to saving for potential homebuyers, access to affordable credit represents another substantial roadblock. The landscape of credit accessibility highlights a crucial issue: an estimated 50 million Americans are "credit invisible," as reported in a 2022 fact sheet from the Office of the Comptroller of the Currency's Project REACh (Roundtable for Economic Access and Change). These individuals lack a credit file and, consequently, a credit score, which makes qualifying for a mortgage, credit card, or other financing exceedingly challenging.

Understanding Credit Invisibility

The term "credit invisible" refers to individuals who have not interacted with the credit system sufficiently to establish a credit history. "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, CEO of the housing financing agency Fannie Mae. This lack of credit history affects diverse groups, including people new to the country, Black and Latino individuals, and young adults such as millennials, who are a driving force in the housing market demand.

Positive Rent Payment Reporting Initiative

Consumers with thin credit files may still have a history of paying rent on time, a factor that Fannie Mae started to consider in late 2022 through its Positive Rent Payment Reporting initiative. Extended through the end of 2024, this program allows renters in eligible properties to have their rent payments reported to 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 stated.

Boosting Credit Scores with On-Time Rent Payments

Having little or no credit is a significant barrier to obtaining a mortgage and securing favorable loan rates. However, rent payments can serve as a pathway to gaining credit visibility. Fannie Mae's free program collaborates with providers such as Esusu Financial Inc., Jetty Credit, and Rent Dynamics. Numerous other players in the market, including Experian Boost, report rent payments for free and cover utilities, mobile phones, and streaming services. Additional rent-reporting firms like Boom, Rental Kharma, RentReporters, and Self offer services that report rental payments to one or more major credit bureaus, either for free or for a modest fee, by accessing bank statements.

Inclusion of rent payments in credit reports can lead to significant credit score improvements. According to a 2021 TransUnion report, consumers see an average credit score increase of nearly 60 points when rent payments are included in their credit history. Fannie Mae's pilot program has already assisted over 35,000 people in establishing credit scores. Participants with existing credit scores saw an average increase of up to 40 points.

Personal Success Stories

For individuals like Joe Grande, a 56-year-old inventory control clerk from Florida, the impact of these initiatives has been transformative. After enrolling in free rent reporting through his landlord and Esusu, Grande experienced a credit score boost of 80 points within three months, elevating his score to 660. "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 remarked, reflecting on how the program has kept him on track toward his homeownership goal.

Expert Insights on Credit Building

Experts emphasize the significant impact of including rent payments in credit history. Martin Lynch, president of the Financial Counseling Association of America and education director at Cambridge Credit Counseling, likened the effect to "jumpstarting your car with a truck battery," highlighting the substantial benefit of adding 24 on-time payments to a credit profile. However, they also caution that building credit takes time. Establishing a credit profile typically requires six months, with a longer period needed to build a solid repayment track record. Credit scores range from 300 to 850, and scores below 670 are generally viewed by lenders as 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," explained Bruce McClary, a senior vice president at the National Foundation for Credit Counseling.

Considerations and Cautions

While these programs can expedite credit building, it is essential to carefully review the costs and terms associated with rent-reporting companies. Fannie Mae's pilot program offers positive payment history reporting to all three major credit bureaus at no cost. However, consumers using rent reporting services outside of this program should ensure their good payment history is reported to all three major credit bureaus—Equifax, Experian, and TransUnion—to maximize impact.

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

Conclusion

High housing costs and limited access to affordable credit continue to present significant challenges for U.S. consumers. Innovative programs like Fannie Mae's Positive Rent Payment Reporting are crucial in helping individuals build credit and gain financial stability. As these initiatives evolve, they offer a promising path toward broader credit accessibility and homeownership opportunities for many Americans.