housing is U.S. consumers’ top spending —While high rents and house prices are barriers to savings for potential homebuyers, Get affordable credit is another important obstacle.
An estimated 50 million Americans are “credit invisible” 2022 Brochure From the Office of the Comptroller of the Currency’s REACH initiative (Roundtable on Economic Access and Change). This means they have no credit file and no credit score, making it difficult to obtain a mortgage, credit card or other financing.
Priscilla Almodovar, CEO of home finance agency Fannie Mae, said: “‘Invisible credit’ is people who have not interacted with the credit system. They either have no credit file or credit The profile is weak. “So that affects people who are looking to buy a home, which may be new to the country; it may be Black people, Latinos and young people, Millennials, driving the demand for housing. “
Still, consumers with weak credit files may have a history of paying rent on time — a factor that mortgage financing provider Fannie Mae will start counting in late 2022. Aggressive Rent Payment Reporting Initiativehas been extended until the end of 2024 to allow people renting qualifying properties Calculate their rent payment Provided free of charge by credit rating agencies.
“We are now able to level the playing field and make credit available to more consumers,” Almodóvar said.
Paying rent on time can improve your credit score
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Having little or no credit is a major barrier to getting a mortgage. It also prevents consumers from obtaining attractive interest rates on all types of loans.
Paying rent may be a way to gain credit visibility.
Fannie Mae’s no-fee plan works with providers Esusu Financial Inc., Jetty Credit and Rent Dynamics. There are many other players in the market. Experian Lift Report free rent payments as well as utility, cell phone and streaming service fees. other rent reporting company – include Prosperity, Kama Rental, rent reporter and Own — Or provide your rental payments to one or more of the major credit bureaus, free or for a small fee, by allowing access to your bank statements.
According to one agency, consumers’ credit scores improve by nearly 60 points on average when rent payments are included in credit reports. 2021 TransUnion Report.
Fannie Mae’s pilot program has helped more than 35,000 people build their credit scores, the agency reported. Participants who already have a credit score and are seeing improvements Average score improved According to Fannie Mae, it can go up to 40 points.
Florida resident Joe Grande, 56, who works as an inventory control clerk, saw his credit improve 80 points in the first three months after signing up for a free report with his landlord through rent reporting company Esusu, a provider. 660 points. He said the program 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 is paid on time,” Grande said.
Experts say the impact on your credit can be significant. “It gives you 24 more on-time payments, and it’s like starting you up with a truck battery,” said Martin Lynch, president of the American Association of Financial Counseling and director of education at Cambridge Credit Counseling, a nonprofit based in Agawam. The same as the car.
But lower your expectations
While these programs can help build credit faster, experts warn that building a track record takes time.
Experts say it typically takes six months to build a credit file and even longer to establish a solid repayment history. credit score Credit scores typically range from 300 to 850 – lenders generally consider a credit score below 670 to be higher risk.
“For people with a 680, they’re going to be able to get financing, but that generally won’t get them the lowest rates and the best deals,” said Bruce McClary, senior vice president at the National Foundation. For credit counseling.
It’s also important to double-check the costs and terms of the rental reporting company you want to use. While the Fannie Mae pilot program only provides positive payment history to all three credit bureaus for free, consumers using rent reports beyond that should clarify whether reporting to all three of the largest players (Equifax, Experian and TransUnion ) reported this information.
“If you report a good payment history to one of the three credit bureaus, the impact is likely to be less than if you report to all three credit bureaus,” said Matt Schulz, chief credit analyst at LendingTree.
