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If renters’ monthly on-time payments were reported to credit bureaus, their credit scores could grow by an average of 60 points.
An ambitious effort by one of the biggest players in the mortgage market, Freddie Mac, to open up renters’ access to credit is relying on landlords to help.
But few landlords and property managers know the effort exists.
Studies have shown that consumers could benefit from having credit scores that include what is most often their largest monthly expense. But the disadvantage that renters face when applying for financial products and services is rooted in the nature of rental payments.
Since rental payments are made to landlords and property management firms, these individuals and companies would be the main source for providing credit bureaus with payment histories. And most do not provide this information. Fewer than 10 percent of renters have rental payment histories in their credit reports, according to Freddie Mac.
In response, the mortgage-buyer rolled out an initiative last year aimed at encouraging landlords to report positive rental payment histories to credit bureaus.
So far, few landlords know about credit bureau reporting, said Maitri Johnson, vice president of tenant and employment screening at credit reporting agency TransUnion.
“The same challenge being faced still today is, from a landlord’s perspective, a lack of awareness that this can actually be reported to a credit bureau, this can actually appear in a consumers credit profile,” Johnson said. “Awareness is very much in an infancy stage.”
Renters Face Big Obstacle
Instead of just allowing lenders to use a prospective homebuyer’s rental payment history when underwriting a loan, as Fannie Mae’s underwriting platform does, Freddie Mac wants to help all renters grow their credit scores, whether they’re buying a home or not. To encourage property managers to report positive rental payment history to credit bureaus, Freddie Mac will provide closing cost credits on multifamily loans for owners of rental properties who agree to report on-time rental payments through a platform from the New York-based financial technology company Esusu. Freddie Mac has also negotiated discounted fees for Esusu’s services.
“Rent payments are often the single largest monthly line item in a family’s budget but paying your rent on time does not show up in a credit report like a mortgage payment,” Michael DeVito, CEO of Freddie Mac, said in a statement in November. “That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car or even an education.”
The drive is partly rooted in a desire to promote racial equity. Fannie Mae’s latest National Housing Survey showed that 29 percent of Black consumers identified insufficient credit score or credit history as the single biggest obstacle to getting a mortgage, compared to 18 percent of white consumers.
A 2017 study by credit reporting company Experian found that adding rental payments to credit reporting increased credit scores for nearly 75 percent of the population included in the study. A 2021 study by TransUnion found that including rental payment histories increased credit scores by an average of 60 points.
Overworked, Understaffed and Wary
To report rental histories as part of Freddie Mac’s initiative, Esusu connects to each property manager’s system. Using property managers’ own systems reduces the potential for inaccuracies and fraud, said Esusu co-founder Samir Goel, adding that Esusu’s system is built to recognize suspicious information or activity. The company works with rental landlords of all sizes, and the platform currently covers 2.5 million rental units, with approximately 6 million renters.
Esusu has seen rental payment histories affect credit scores, with an average increase of 72 points during the two-year period from January 2020 to December 2021 and an average increase of 26 points in 2021.
The company’s experience in the industry has shown that property managers are often overworked and understaffed, said co-founder Abbey Wemimo, pointing to another barrier to reporting rental payments.
“If you create any additional work, there’s a good chance that this will not be adopted, even if it has the best benefits in the world,” he said.
In addition to providing the resources and technology to facilitate credit bureau reporting, Esusu also works to educate landlords about the benefits of reporting rental payments, Wemimo said, noting that property managers want to do what is in the best interest of residents.
“We spend a lot of our time giving them a level of comfort that this is indeed legal, number one, and number two, it is accretive to the credit profile of the resident,” he said.
Local Efforts at Work, Too
MassLandlords Inc., a trade group for the state’s landlords, recognized the benefits of rental payment reporting for tenants when creating its RentHelper platform a few years ago. The platform, which simplifies the rental payment process, was spun off from MassLandlords in 2017, said Doug Quattrochi, executive director of MassLandlords.
Quattrochi, who had not heard about Freddie Mac’s initiative, said about 40 landlords with 200 tenants use the RentHelper service, and these landlords’ renters have seen their credit scores increase between 5 and 25 points.
“A lot of folks who do rent have been very consistent payers for a very long period of time, but otherwise they don’t have much to show on a credit report … and that’s a really powerful thing to know about it,” Quattrochi said.
Diane McLaughlin
While RentHelper can report negative payment histories, Quattrochi said it so far has only reported positive histories, with the company often working directly with tenants to understand missed payments.
Esusu, the company powering the Freddie Mac initiative, only reports positive payment histories because most negative data would already be reported to the bureaus, including through collections agencies, said Goel.
