Making It Count: How Paying Rent Can Build the Credit Health of Tenants
For millions of households, the largest payment they make monthly is rent. And while this payment is keeping a roof over their heads, making on-time rent payments is largely missing in a renter's credit picture.
Building credit is one of the most persistent financial challenges facing renters, and it affects many aspects of their financial well-being. It makes a difference in life's major purchases: buying a house, financing an education, or getting a car. Unlike a mortgage payment, which is reported automatically by lenders to credit bureaus, on-time rent payments are mostly not captured in the credit system. Presently, less than 10% of renters see their on-time rental history reflected in their credit scores.
At Freddie Mac, we embraced this challenge as an opportunity to help make rent count. Today, Freddie Mac Multifamily announced a new effort with Esusu to help renters build credit by encouraging operators of multifamily properties to report on-time rental payments to the three major credit-reporting bureaus.
Today, the most common way that rents are reported to credit bureaus is when there is a missed payment that has gone to a collection agency. Freddie Mac's effort with Esusu can help us flip that script, so that renters who do pay on-time and in-full each month can see a benefit in their credit scores.
As part of this initiative, Freddie Mac will provide closing cost credits on multifamily loans for owners of multifamily properties who agree to report on-time rental payments through Esusu's platform. Esusu's technology delivers rental payment data from property management software to credit bureaus while ensuring compliance with industry standards. This platform eliminates the administrative burden for owners, which has been the single largest hurdle facing industry efforts to report rental data. Freddie Mac also negotiated discounts for the Esusu technology for participating operators.
This effort to make rent count will help solve what has been one of the most persistent challenges facing renters who want to build credit. With an average score of 638, renters are often in the "poor" credit range. A homeowner's typical score is greater than 717, which opens the door to those greater financial opportunities reserved for those with good credit. This effort helps level the playing field for renters who prioritize making their rental payments on time, month in and month out.
To start, Esusu will report up to 24 months of on-time rent payments from participating properties to the credit bureaus, resulting in an immediate positive impact to credit scores. The program will automatically unenroll renters when missed payments occur, preventing harm to those who struggle financially. The platform also allows renters to monitor their rental payment data and credit score through Esusu's website and mobile app.
Freddie Mac's mission is dedicated to affordable housing, making us uniquely positioned to find the solutions that advance equitable outcomes for renters. This credit-building tool for renters is just one way that Freddie Mac is providing opportunities for wealth creation through housing – regardless of whether you rent or own. Join us in making rent count for millions of households.
©2022 by Freddie Mac.
Raising the Bar – Freddie Mac’s New Duty to Serve Plan
Mike Hutchins, President
First-Time Homebuyers are Driving the Market Forward
Sam Khater, Vice President and Chief Economist, Economic & Housing Research