Rent payments can improve credit visibility for 'credit invisible' consumers.

• Not having credit can significantly hinder one's ability to obtain a mortgage and also affects the interest rates on various loan options.
• Rent payments are one way to gain credit visibility and boost credit scores.
• While there are more options now to build credit, it takes time.

While high rents and home prices are significant obstacles to saving for potential homebuyers, access to affordable credit is another significant roadblock.

Approximately 50 million Americans are considered "credit invisible," as stated in a 2022 report from the Office of the Comptroller of the Currency's Project REACh. This implies that they do not possess a credit file or a credit score, making it difficult for them to obtain a mortgage, credit card, or other forms of financing.

"According to Priscilla Almodovar, CEO of Fannie Mae, 'credit invisible' refers to individuals who have not engaged with the credit system, resulting in either a non-existent or thin credit file. This affects those seeking to purchase a home, including newcomers to the country, minorities, young people, and millennials, who are the primary drivers of housing demand."

Fannie Mae started to consider the payment history of rent in late 2022 as a factor for mortgage financing. Its Positive Rent Payment Reporting initiative, which runs until the end of 2024, allows eligible renters to have their rent payments reported to credit rating agencies at no cost.

Almodovar stated that we can now even the playing field and make credit accessible to a larger number of consumers.

On-time rent payments can boost credit scores

A lack of credit can significantly hinder one's ability to obtain a mortgage and favorable loan rates.

Rent payments can be one way to gain credit visibility.

Fannie Mae's program collaborates with Esusu Financial Inc., Jetty Credit, and Rent Dynamics, among other players in the market. Additionally, Experian Boost offers free rent payment reporting, as well as reporting for utilities, mobile phones, and streaming services. Other rent-reporting firms, such as Boom, Rental Kharma, RentReporters, and Self, also provide rental payment reporting for free or a modest fee by granting access to bank statements.

According to a 2021 TransUnion report, including rent payments in credit reports can result in an average increase of nearly 60 points to a consumer's credit score.

Over 35,000 individuals have established credit scores through Fannie Mae's pilot program, with an average score increase of up to 40 points for those who already had a credit score.

Joe Grande, a 56-year-old Florida resident who works as an inventory control clerk, experienced a 80-point increase in his credit score within the first three months of signing up for free reporting from his landlord through Esusu, a rent reporting company that collaborates with Fannie Mae. According to Joe, the program has aided him in staying on track toward his goal of purchasing a home.

Grande stated, "Although it gives me a sense of control, it also motivates me to ensure all other payments are made on schedule."

The impact on your credit can be substantial if you make 24 on-time payments, as experts suggest. According to Martin Lynch, president of the Financial Counseling Association of America and education director at Cambridge Credit Counseling in Agawam, Massachusetts, this is equivalent to jumpstarting your car with a truck battery.

But temper your expectations

Experts advise that despite the speed at which these programs can improve credit scores, it is necessary to establish a history of responsible credit behavior.

Experts suggest that it takes approximately six months to establish a credit profile and even longer to build a strong history of on-time payments. Credit scores typically fall between 300 and 850, with scores below 670 considered higher risk by lenders.

According to Bruce McClary, a senior vice president at the National Foundation for Credit Counseling, individuals with a 680 credit score can typically obtain financing, but it may not provide them with the lowest interest rates and the best deals.

Before choosing a rent-reporting company, it's crucial to review the costs and terms, especially if the company is not part of the Fannie Mae pilot program. Consumers should ensure that the information being reported to all three major credit bureaus, Equifax, Experian, and TransUnion, is accurate and up-to-date.

"Reporting your good payment history to one credit bureau may not have as much impact as reporting it to all three," advised Matt Schulz, the chief credit analyst at LendingTree.