Rental Payments Reported on Credit Bureaus

Many Americans are familiar with the terms Fannie Mae and Freddie Mac, but may not know exactly what they represent. Many believe Fannie Mae and Freddie Mac are branches of the federal government. Christy Hembree, a senior mortgage loan originator at Gustan Cho Associates says the following about rental payments reported on credit bureaus.

The role of Fannie Mae and Freddie Mac is to guarantee conventional mortgage loans. After the real estate crash of 2008, the United States government took over operations of both of these previously privately held companies.

In this blog, we will detail the functions of Fannie Mae and Freddie Mac, discuss a recent change in Freddie Mac‘s mortgage programs, and explain how to apply for a mortgage with Gustan Cho Associates. In the following paragraphs, we will be covering Freddie Mac’s new guidelines on rental payments reported on credit bureaus.

The Role of Fannie Mae and Freddie Mac in The Mortgage Markets

The role of Fannie Mae and Freddie Mac is to keep stability in the housing and mortgage markets. Here is a quick dive into Fannie Mae and Freddie Mac. We will keep this short and sweet as this can get boring quickly.

The primary role of Fannie Mae and Freddie Mac is to reduce the risk for mortgage lenders who write mortgage loans that investors will eventually purchase.

This is the main reason the 30-year fixed mortgage programs are available. If a loan is not eligible to be purchased by Fannie Mae or Freddie Mac, typically those mortgage loans are more expensive (higher rates and fees). An example of this would be a NON-QM mortgage loan. Fannie Mae and Freddie Mac are known as government-sponsored enterprises or GSEs.

Credit Reporting of Rental Payments

In the past, building credit when renting a home came with many obstacles. While home owners build credit history with mortgage payments, renters were left with no way to build credit. As homeowners build credit, paying rent did not help renters with their credit scores. Rental payment reporting to credit bureaus (Equifax, Experian and TransUnion) has changed the game as millions of Americans can now improve their credit scores and build credit simply by paying their rent on time.

This guide will help you understand how reporting your rental payments to credit bureaus work, the credit bureaus your rental payments will be sent to, and how it will impact your credit score.

Reporting rental payments is reporting your monthly statements of timely rent payments to credit bureaus (Equifax, Experian, and TransUnion). These payments will show up on your credit file as loan accounts. Therefore, your score might get a lift from consistent monthly payments on your credit report.

Credit Reporting of Rental Payments: How It Works and How It Will Help Build Better Credit

In the past, renters have paid thousands of dollars in rent with `no credit benefits at all`. For years, paying the rent was a challenging task, and renters continued with `no benefits whatsoever.

The system functions through certain services that verify and send payment information from landlords or property management companies to credit bureaus.

This establishes an official record of your payment history that credit scoring algorithms can incorporate into their assessments. Over time, many landlords and profit-oriented services have begun reporting their rent payments. This has enabled renters a `valuable alternative at building credit. In this article, we explain how rent payment reporting works, which credit bureaus accept and why, how it can help you qualify for a mortgage, and some of the possible pitfalls to consider before signing up for a rent payment reporting service.

What Does It Mean When Rental Payments Are Reported On the Credit Bureau

Historical Credit Vs. Rental Payment History

Credit history includes:

• Credit cards
• Auto loans
• Student loans
• Personal loans
• Mortgages
• Rent payments, along with various utilities and your cell phone bill, will not be documented on your credit report unless a collection agency gets involved.
• Renters get penalized if a payment is missed, but not rewarded if payments are made on time.
• With credit rental payments reported to a bureau, on-time payment history for rent can be abstracted and reported on your credit report like a tradeline.

Rental Payment Reporting by Credit Bureaus

Increasingly, landlords offer rental reporting as a tenant amenity, and some services even enable renters to self-enroll, even if their property management company does not participate directly. Your property owner must use a reporting service or platform that sends payment data.

When reporting rental data, it is good to check with rental reporting service to see which rental reporting bureaus they report to. A fuller rental reporting service leads to better credit history.

Equifax, Experian, and TransUnion accept the rental payment data, although not every rental reporting service submits data to all three. Other newer credit bureaus such as Innovis. Models like VantageScore 3.0 and FICO 9 and 10 score with rental payment history more than with older scoring models. This increases benefits with newer models adoption becoming more widely used among lenders.

TransUnion, Equifax, And Experian

Most rent-reporting systems submit information to at least one, if not two or even three, of the primary credit bureaus.

• TransUnion: They accept rental payment data from landlords and other third-party service providers.
• Experian: Usually incorporates renter information into some of its scoring systems and specialized products made for credit cards or even other future rental agreements.
• Equifax: Accepts rental trade lines through approved rent reporting services and property management systems.
• Not all lenders obtain credit scores that incorporate rental payment history.
• However, more and more mortgage lenders, auto lenders, and landlords tend to view it favorably.

Why Reported Rental Payments to Credit Bureaus Can Help Your Credit

Building Credit for “Thin File” or No-Score Borrowers

Having little or limited credit history means that you will be classified as a thin file” borrower.

This complicates and results in a higher level of difficulty to:

• Obtain a credit card.
• Get a car.
• Qualify for the lowest rates on a mortgage

If you have 12-24 months of rental payments that have been reported to the credit bureaus, it can help:

• Create an account history for someone with a blank credit history.
• Bolster a positive account on a thin credit file.
• Exhibit a consistent history with on-time payments of the same dollar amount.
• This can help to transform a “no score” borrower into an approvable borrower for certain mortgage programs.

Improving Scores for Credit-Challenged Borrowers

If you’ve had a history of poor credit, **on-time rental payments reported to credit bureaus** can help to assist in documenting your recovery story.

Note that rent reporting won’t remove other types of negatives on your account, like late payments, charge-offs, collections, etc.** But it does do things, like:

• Get more recent positive payment history reporting.
• Help to balance out older negatives over time.
• Show lenders that you’re able to keep up with a large monthly payment.
• This becomes more relevant with a mortgage application, especially since payment history on other housing debt is a major consideration.

Rent Payments and Mortgage Approval

• How lenders view your rental history.
• When applying for a mortgage, lenders need to confirm that you can afford a housing payment.

They usually check your housing payment history for the last 12 months by:

• Reviewing bank statements and checks for payments to the landlord.
• Requesting a Verification of Rent (VOR) from the landlord.
• Occasionally, looking at rental tradelines on your credit report

If your rental payments are reported on credit bureaus, it may:

• Help the underwriter ease verification of your housing payment history.
• Add positive data to your credit file.
• Help with approvals for credit-challenged borrowers with strong rent history.
• This can be the key for many renters that will help shift them from almost approved to clear to close on a home mortgage.

Can Credit Bureaus’ Reporting Rent Payments Replace a Traditional Credit Report?

• The straightforward answer is no.
• Reporting rent payments on a credit bureau is a very positive contributing factor.

However, most mortgage programs still want:

• At least 2 or 3 tradelines with a minimum of 12-24 months of credit history, or
• A strong non-traditional credit profile with a history of rental payments.

The above is true; however, if you are close mortgage qualifying, the addition of the rent payment data may be the factor that moves your credit profile into a readily acceptable position. This is particularly true with lenders that do manual underwriting or that lend to marginal borrowers.

What to Do to Get Reported Rent Payments on Credit Bureaus

Step 1: Get a Reporting Rent Payment Service. Is To Speak To Your Landlord or Property Manager

• This step is simple and is just to speak to your landlord or property manager.

Here is the winning formula:

• If they are using a service that reports rental payments.
• If they are open to rent-reporting platforms
• If professional property managers with bigger complexes are your landlord, they are more likely to have a reporting service.
• If the manager is a smaller landlord or individual, it is true that they may not have a service.
• However, many rent-reporting services make it easy for sign up.

Engage a Third-Party Reporting Agency

In the event your landlord decided not to report or is unable to report, you have the option of researching third-party rent-reporting services.

These services usually:

• Verify your rent payments through an online portal, bank statements, or landlord verification.
• Report your payments to one or more bureau(s) if payments are made on time.
• Charge an enrollment fee and a monthly subscription fee.
• Consider the following when evaluating such services.

Which Credit Bureau(s) They Report To.

• If they have the ability to report your previous rental history covering, for instance, 12 to 24 months.
• The setup expenses and monthly cost.
• The duration it takes for your reported rent payments to appear on the credit bureau(s).
• Carefully read the fine print and avoid any services claiming to have guaranteed 100-point score increased.

Reported Rental Payments on Credit Bureau(s) – Potential Negative Outcomes

If You Pay Late, What Happens?

It is particularly important to understand that once you have rental payments reported on credit bureau(s), you should know that late payments have the potential to be reported.

Here’s what tt means:

• If you pay rent 30 days late, it can affect your credit like a late auto loan payment would.
• Other late payments can lower your credit score.
• If you break a lease or are evicted, it can even become a collection account, which is damaging.

If you are unsatisfied with paying rent on time every month, then rent reporting may not be the most suitable option.

Costs Vs Benefits

Most rent reporting services are going to charge:

• A one-time setup fee.
• A monthly fee for reporting.

Before you sign up, ask:

• Will the cost be worth it for the potential improvement in your credit score?
• Would you be better off using that money to pay down debt or set money aside for an emergency fund?
• Do you plan to take out a mortgage or auto loan soon?
• If so, that extra tradeline could help!
• For many renters looking to purchase a home in the next 6-24 months, the investment is worthwhile.
• Especially if it helps them secure better mortgage options.

Best Practices Before You Start Reporting Rent

Get Your Current Credit Report and Scores

Obtain reports of your credit from each of the three bureaus. The first step before signing up for any rent reporting service is to obtain credit reports from the three major credit bureaus. You may also want to see each of your credit reports. Also, look for late payments that you may want to have removed, as well as other questionable items that are old collections.

Look for any collections that may be outdated and try to acquire them. You may be surprised by all the collections you want to look for, as it is beneficial to address any collections.

If, it is beneficial to try and fix any of them before you start implementing the credit strategy that you might want to implement after you start implementing the strategy with your credit.

Stabilize Your Budget and Payment Habits

To get the most benefit from the rent reporting service, try to set it up so that you can have your rent payment set up for automatic withdrawal. If possible, it is best to also incorporate some simple budgeting to track all expenses for the month.

In addition, and as an extra benefit to doing all of the above, it is best to try to build an emergency savings so that you do not plan on spending all of the money that you have for the month.

Make sure you do not obtain any new high interest debt while you are doing all of this. The goal is to have it be so that your tradeline for the rent is showing that it is clean and that it has a lot of on time payments for it which means that it has a lot of history. You want it to building as old as possible.

Alternative Mortgages and Rental Payments to Credit Bureau Reporting

Rental Payment History and How Alternative Credit Evaluators Factor It In

Mortgage lenders such as non-QM and alternative lenders consider a range of factors under their own criteria to make decisions concerning mortgages:

• 12-24 months of on-time rent.
• Bank statements indicating a consistent rent withdrawal.
• Landlord verifications indicating rent was never defaulted.

Intensity of monitoring occurs when rental payments are reported to the credit bureaus an are complemented by the following factors:

• You are self-employed.
• You may have recent credit issues but with high income.
• You are applying for a bank statement loan, or DSCR loan if you are an investor.
• In general, lenders focused on no-overlay, common-sense underwriting consider good rental history a significant positive factor especially when the credit history is lacking.

How Long is the Impact of Rental Payments on Credit

Time Expected to Improve Credit Score

A general guideline to follow is individual personalization of each credit profile.

• It typically takes 30-60 days for the loan reporting companies to report the rental information.
• In an equal time, several companies will back-report rental payments made for the last 12-24 months.
• For a time between 3 and 12 months, reporting of on-time rent payments will strengthen the overall credit report.

To determine how much your score will be affected, consider:

• The number of your current active accounts
• The number of years you’ve had credit.
• If you have any recent late payments or collections.
• What version of your credit score does a lender have?
• The main thing is to be consistent.
• That’s being on time every month, with no exceptions.

When Does Reporting Rental Payments to Credit Bureaus Make the Most Sense

Premium Scenarios for Rent Reporting

If you’ve got plans to:

• Apply for a mortgage in the next couple of year.
• Have little or no credit history.
• Have previously had credit issues, but have been consistently paying your rent on time.
• Want your biggest monthly bill to start working in your favor?

Rent Reporting is Great For You!

You may speak with a loan officer who is knowledgeable about rent reporting, non-traditional credit, and manual underwriting. They will review your comprehensive profile and advise on the value of rent reporting for your specific scenario.

Rental Payments Reported to Credit Bureau FAQs

Can All Lenders See My Rental Payment History?

• Not always.
• Rental payments reported to credit bureaus will appear on your credit report if the bureaus accept your data, your rent reporter is active, and it is set up correctly.
• However, not all lenders even pull all three reports, and not all credit scoring models utilize rental data.
• That said, many underwriters will pull your full report and review the rental tradeline, which can be beneficial to your credit file.

Does This Guarantee a Higher Score?

• No one can guarantee a score increase with rental payments reported to credit bureaus.
• Reported rental payments are helpful, but each person will see a different score change based on their overall credit profile.
• Contributing factors toto your score include debts, utilization, payments, and the overall age of your credit.—

Can Late Rent Payments Hurt My Credit if They Are Being Reported?

• Yes. Once your lease is reported, late payments can show up as late tradeline activity, just like a late credit card payment.
• If you are habitually late on rent, rent reporting could hurt more than help.
• It’s best to enroll only if you are certain you can pay on time every month.

Can I Get Past Rental Payments Reported, or Only Future Ones?

• Most rent-reporting services provide back reporting, meaning they can report 12–24 months of past on-time payments if they can verify them, leasing credit services.
• This can provide your credit file an immediate boost by adding long-term positive history instead of just payments.

How Much Does it Cost To Have Rental Payments Reported on Credit Bureaus?

• Fees vary by provider, but most providers charge one time setup fee plus a monthly fee for continued reporting. It’s important to compare providers, read the fine print, and see if the cost fits your budget and your needs.
• For renters preparing for a mortgage, the cost may be worth it if it helps achieve for more favorable terms.

Is Rent Reporting The Same As Adding an Authorized User Tradeline?

• No.
• Authorized user tradelines come from being added to someone else’s credit card.
• Reports of rent payments on credit bureaus are generally your own standalone tradeline.
• Both are potentially beneficial, but rent reporting is associated with your housing payment, which is critical to mortgage underwriting.

Can Rental Payments Reported on Credit Bureaus Help Me Qualify For an FHA, VA, or Conventional Loan?

• They can help strengthen your profile, especially with limited credit history, but do not replace the basic guidelines for FHA, VA, or conventional loans.

Lenders will still look at:

• Credit scores.
• Debt-to-income ratios (DTI).
• Employment and income history.
• Down payment and reserves.

A clean 12–24 month rental tradeline can, however, make underwriters more comfortable approving your loan with no overlays and common-sense underwriting lenders.

What if The Landlord Refuses To Participate? Can I Still Get My Rental Payments Reported?

• Most likely yes.
• There are many independent services that can verify your rent through bank statements, payment apps, or landlord verification without your landlord needing to enroll directly.
• Just make sure that any service you use has an outlined process for verifying independent landlords.

Will Rental Payments Reported on Credit Bureaus Remove Collections or Other Negative Items?

• No.
• While reporting rent payments does not impact one’s negative items, it does encourage credit bureaus to consider other written records as older, less important, and, in some cases, possibly even mitigate older, negative accounts.

You may consider still:

• Disputing misinformation.
• Settling or negotiating specific accounts when applicable.
• Partnering with a seasoned loan officer to outline a specific credit and mortgage roadmap.

Should I Sign Up For Rent Reporting if I Plan To Buy a Home Soon?

• The answer is typically a strong yes, it’s worth exploring rent reporting for renters about to become homeowners.

Assuming you have:

• Good on-time payments for rent.
• Settled credit accounts.
• An objective to obtain a mortgage within 6-24 months.
• Having rental payments reported on credit bureaus is a valuable asset when attempting to secure a mortgage.
• Just ensure payments have been made on time using a reliable payment reporting service.

What Role Did Fannie Mae and Freddie Mac Play in The Financial Crisis

Fannie Mae was created after the great depression when almost one in four Americans lost their home due to foreclosure. Banks did not have the money to lend, and the federal government created the Federal National Mortgage Association or FNMA, better known as Fannie Mae.

They brought a new type of mortgage program to the market, a long-term fixed-rate mortgage product. Freddie Mac is a very similar organization that has been named the Federal Home Loan Mortgage Corporation or FHLMC.

They were established in 1970 to expand the secondary mortgage market and reduce interest rate risk for lenders. While both of these enterprises are very similar, they do have slight differences in their conventional mortgage
guidelines.

Fannie Mae and Freddie Mac Largest Repurchasers of Mortgages To Keep Rates Competitive

What are the main functions of Fannie Mae and Freddie Mac? To keep stability in the mortgage markets by buying loans on the secondary market so lenders can offer low down payment mortgages at low rates.

Fannie Mae and Freddie Mac regulate conforming (conventional) mortgage guidelines. They buy mortgage loans from lenders to hold in their portfolios or re-package mortgage loans as mortgage-backed securities to be sold on the secondary market.

Mortgage lenders will utilize the money they get from selling mortgage loans to originate new loans. Fannie Mae and Freddie Mac help create a stable supply of money for mortgage funding.

Fannie Mae and Freddie Mac Provides Liquidity To Lenders By Buying Loans on The Secondary Market

Fannie Mae and Freddie Mac support the secondary market of residential mortgage loans by increasing the liquidity of mortgage investments creating more money available for residential mortgage financing. They promote mortgage credit by increasing the total money available for mortgage lending. Do many people ask who regulates Fannie Mae and Freddie Mac?

Now that Fannie Mae and Freddie Mac are government-sponsored entities, they have oversight by the federal government. This creates a check and balance to avoid another housing crash as we saw in 2008.

The President of the United States will appoint 5 of the 18 Board of Director members. Anyway, Freddie Mac is directly regulated by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Financial Agency (FHFA). During the COVID-19 pandemic, the federal government stepped in and utilized its oversight to protect Americans from financial hardship caused by the pandemic. The CARES act offered protections for homeowners who had their mortgages securitized by Fannie Mae and Freddie Mac. They were protecting Americans from foreclosing on their home and allowed forbearance of all payments for up to six months, with an additional six months available if needed.

Recent Update on Freddie Mac on Rental Payments Reported on Credit Bureaus

A recent change for Freddie Mac is renters can now have rental payments reported on credit bureaus for their on-time rent payments. Freddie Mac has recently announced they are starting a program to help renters purchase a home. Historically speaking, many renters find it hard to purchase a home because their credit profile may not be strong enough to purchase a home.

The federal government directly saved thousands of Americans from losing their home during this crazy time we are living through. We all are feeling the financial strains caused by pumping the U.S. economy with billions of dollars.

Saving people from losing their homes is very important. Starting July 10, 2022, on-time rental payments will be factored into the Freddie Mac automated underwriting system. LPA or loan product advisor will now give weight to on-time rental payments when computing your overall risk to purchase a home.

How Can You Get Credit For Paying Rent on Time

This is a big deal because most of the time, rental payments are not reported on your credit report. On-time housing payments are a huge factor that will raise your credit score and more importantly ability to buy a home.

Since many first-time homebuyers have little or no credit, or derogatory items in the past, it may be difficult for them to have a strong FICO score.

With the borrower’s permission, a lender may now verify the most recent 12 rental payments to determine eligibility. The lender must review 12 months of on-time payments via bank statements, canceled checks, electronic transactions, or digital payments such as Venmo, PayPal, or Zelle. While this may not sound like much, this is a major change for Freddie Mac.

Rental Payments Reported on Credit Bureaus Is a Huge Plus For Renters

We expect Fannie Mae to follow a similar suit in the near future. A mortgage underwriter will factor in housing payment history when making their overall decision. This now allows renters to utilize their on-time payment history to strengthen their loan application without paying a third-party service to add their rental payments to the credit report. As always, Gustan Cho Associates will continue to update our readers with major announcements like these from any of the major mortgage agencies.

Rental Payments Reported on Credit Bureaus Can Be Used As Compensating Factor

As technology advances, we are making it as easy as possible to apply for a mortgage loan with our team. Since almost everything is now digitized, applying for a mortgage has never been easier. First and foremost, you will reach out to Alex Carlucci at (800) 900-8569 or via email at mike@gustancho.com.

You and Alex Carlucci have an in-depth conversation about your mortgage qualifications. This step is incredibly important to make sure we find the best mortgage program for you and your family.

After your initial consultation, you will be sent an online application link from a licensed loan officer in your state. When filling out the online application, it is important to be as thorough as possible. Our team will need to have a two-year history of your employment and verify where you have been living for the past 24 months. We will also need to verify your sources of income, and assets that will be used for the down payment and or closing costs. Once we have all this information, our team will get to work for you.

Lenders With No Mortgage Overlays

Part of the initial online application gives us permission to pull your credit reports. After we have your credit report, we will crunch the numbers based on your income and asset documentation. At this point, you will be sent a preapproval letter. If for some reason you do not qualify today, Gustan Cho Associates will put together I financial plan to help you qualify for a mortgage loan in the near future. Her team has seen every credit profile from 400’s all the way up to 800s and can put you on the path to qualify as soon as possible.

Rental Payments Reported on Credit Bureaus Is Now Traditional Credit Tradeline

As you can tell from this article, mortgage qualifications are constantly changing. That is why our team takes pride in keeping you informed on recent guideline changes. Besides conventional mortgage loans discussed in this blog, we also offer competitive FHA, VA, USDA, and specialty mortgage programs.

Gustan Cho Associates has a full line of NON-QM mortgage programs for individuals who may not fit into your conventional lending criteria. Our highly skilled loan officers are happy to offer these programs in most areas of our country.

The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays. If you have any questions surrounding the programs, we have available, or this recent change in Freddie Mac’s qualifying criteria, please reach out to Alex Carlucci at (800) 900-8569 we look forward to hearing from you.