Making mortgage payments on time is a surefire way to prop up credit scores, but that’s generally not the case for paying rent on time.
About the only time rental history shows up on credit reports is when delinquent rent is referred to a collection agency. Freddie Mac has a plan to change that.
“There are 44 million renter households in America, but currently less than 10% of these households have their rents reported to the credit bureaus. So rent doesn’t show up in a credit report like a mortgage would. And this puts renters at a disadvantage,” said Alexis Sofyanos, senior director of Equity in Multifamily Housing at Freddie Mac.
It has launched a new initiative to encourage landlords to report timely rental payment histories to the three credit reporting bureaus and will incentivize them to do it.
The new program will provide closing cost credits on multifamily loans for owners of rental properties who agree to report on-time rental payments. The program aims to eliminate the extra administrative work for property management companies by partnering with financial tech platform Esusu Financial Inc.
While the service is not free, Freddie Mac has negotiated discounted fees for Esusu’s services, which manage the end-to-end process of reporting rental payments to all three major credit bureaus.
New York-based Esusu reports up to 24 months of past on-time rent payments, which Freddie Mac says results in an immediate positive impact on credit scores.
Could that reporting actually hurt credit scores for renters who fall behind?
“Only positive payments are reported through Freddie Mac’s program. Late or missed rent payments are never reported in our program and actually trigger un-enrollment from our program. So this protects the most vulnerable renters,” Sofyanos said.
Esusu already provides rental history on more than two million rental units across the country.
“Working with Freddie Mac allows us to address credit invisibility which is an essential first step toward addressing renter financial stability,” said Samir Goel and Abbey Wemimo, co-founders of Esusu in a statement.
Esusu, founded in 2018, raised $10 million in funding this summer, from backers that include Serena Williams and Motley Fool Ventures.
At the onset of the pandemic, in Spring 2020, the company launched a zero-interest housing stability loan program for qualified renters who were financially impacted by the pandemic.
