For most tenants, the monthly rent payment does not show up on a credit report like a mortgage would, putting tenants at a disadvantage in building credit. Freddie Mac says he has a solution.
Making mortgage payments on time is a sure-fire way to improve credit scores, but paying rent on time usually isn’t.
About the only time rental history shows up on credit reports is when overdue 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 those households have their rents reported to the credit bureaus. So the rent doesn’t show up on a credit report like a mortgage would. And that puts tenants 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 rent payment histories on a timely basis to the three credit bureaus and will urge them to do so.
The new program will provide closing cost credits on multi-family loans to rental property owners who agree to report lease payments on time. The program aims to eliminate additional administrative work for property management companies by partnering with fintech platform Esusu Financial Inc.
While the service isn’t free, Freddie Mac has negotiated discounted rates for Esusu’s services, which handle the end-to-end process of reporting lease payments to the three major credit bureaus.
New York-based Esusu reports up to 24 months of on-time rent payments, which Freddie Mac says has an immediate positive impact on credit scores.
Could these reports hurt the credit scores of late tenants?
“Only positive payments are reported through the Freddie Mac program. Late or missed rent payments are never reported in our program and in effect trigger the unsubscription from our program. So this protects the most vulnerable tenants, ”Sofyanos said.
Esusu already provides the rental history of over two million rental units across the country.
“Working with Freddie Mac enables us to remedy the invisibility of credit, which is an essential first step towards financial stability for tenants,” Samir Goel and Abbey Wemimo, co-founders of Esusu said in a statement.
Esusu, founded in 2018, raised $ 10 million in funding this summer, from funders such as Serena Williams and Motley Fool Ventures.
At the start of the pandemic, in the spring of 2020, the company launched a zero-interest housing stability loan program for qualified tenants who have been financially affected by the pandemic.
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