How Paying Rent May Improve Credit Scores

According to the Joint Center of Housing Studies for Harvard University, the number of renter households in the United States is close to 44 million.

For many renters, the monthly rent is the largest payment they make each month.  If a renter misses a payment or is late, they are likely reported to a credit bureau or collection agency. 

If a renter makes a payment on time, no report is sent to a credit bureau. 

Building credit is a financial challenge for many renters across the country. For many, the goal is to own a home but low credit scores have a negative impact on the ability to qualify for a loan. 

The Fair Credit Reporting Act (FCRA) now allows credit reporting agencies to factor in rental payments to improve credit scores.

Freddie Mac announced a partnership in early November 2022 with Esusu, a company that works with property managers and renters to report rental payments to credit bureaus as a way to improve credit scores. 

To incentivize landlords, Freddie Mac is giving closing cost credits to owners of multifamily properties.

Until now, renters didn’t have the option to build their credit by paying the rent on time. If these efforts prove successful, renters will have a new opportunity. Instead of only reporting missing rent payments to collection agencies, landlords can report on time rental payments to three major credit reporting agencies. 

According to the report by Lauren Garren, Vice President & Chief Business Officer, multifamily with Freddie Mac, Esusu software technology makes it easier for landlords to manage this effort which has been a huge reason rental data has not been previously reported. 

How does it work?

Esusu will report up to 24 months of on time rent payments from participating properties to the credit bureaus.  Freddie Mac says the goal is providing opportunities for wealth creation whether you rent or own.