More than 50 million Americans don’t have a credit file with the big three credit bureaus—Experian, Equifax, and TransUnion. This shocking figure underscores a deep injustice at the very heart of America’s financial system. Almost half of the adult population is blocked from building credit because their on-time rent payments never get reported. Renters account for a large share of this rapidly growing group. Renters who have this option pay their rent on time every month, but sad to say, almost never do these timely payments raise their credit scores.
Disparities in credit invisibility are stark. It impacts about 26% of Hispanic consumers and 27% of Black consumers, who find themselves categorized as credit invisible or unscorable. Compared to just 16% of White and Asian consumers who struggle to get the transportation they need. Immigrants and refugees continue to tackle tremendous obstacles. They find it even tougher as their credit histories from their home countries are totally unrecognized. This creates a vicious cycle of financial exclusion that prevents these individuals from accessing traditional financial services.
The Impact of Rent Payment Reporting
We know this isn’t true. Over 90% of renters pay their rent on time every month. Sadly, credit bureaus don’t report this potentially defining element of their fiscal character. If we fail to account for these costly payments, in essence, we abandon a jaw-dropping $5.3 trillion. This number is equal to the untapped potential creditworthiness. Key to this will be ensuring that commercially managed housing services regularly report rent payments and housing histories to credit bureaus. They typically require payment for this convenience, presenting a financial barrier for numerous renters.
Esusu, a financial technology company that aims to increase credit access for renters, has achieved a lot in this space recently. To start, Esusu only reported 10% of total rent payments to credit bureaus through their services. That figure is slowly rising as knowledge increases. Rent payments are scheduled to start appearing on credit reports in about a month, as long as they’re at least 30 days old. Only one of the agencies provides a grace period of 30 days for failure to pay. Some others do not, which can drastically hurt a renter’s credit score.
“We’re leaving over $5.3 trillion on the table, we’ve got to do better.” – Wemimo Abbey
This quote from Wemimo Abbey, co-founder of Esusu, highlights the need for immediate action on this topic. It’s true that rental payment history would have a big effect on expanding access to credit. This issue exacerbates economic inequity, particularly for Black, Indigenous, and other underrepresented communities.
Challenges Faced by Renters
The lack of a consistent and trustworthy alternative to a credit score has repeatedly forced renters into unstable financial circumstances. Low-income borrowers lacking a robust credit record often find themselves rejected from traditional lenders when they are looking for loans. At times, they even turn to predatory lenders who charge outrageous interest rates.
“When we came here, we didn’t have a credit score. We went to one of the biggest financial institutions to borrow money; we were turned away and had to go borrow from a predatory lender who wanted to lend at over 400% interest rate.” – Wemimo Abbey
Such experiences illustrate the challenges faced by individuals who are often left with limited options. Without their rental payment history properly acknowledged, they may find themselves stuck in predatory financial deals and could make their already tenuous economic situation even more dire.
Democratizing Access to Credit
Esusu’s mission is to close the credit access divide for millions of American renters by democratizing access to credit building. The corporation has gotten intentional about building entryways for people who are residing across the street from factory-managed homes. Now, these people stand to gain by having their monthly rental payments reported. By expanding access to alternative credit reporting, Esusu is tackling the systemic injustices of financial exclusion that have harmed millions for decades.
“We have democratized access because you have a long tail of people who don’t live in commercially managed housing.” – Wemimo Abbey
Esusu is on a fast track to growth, now reaching a valuation of $1 billion. This increase presents a unique opportunity to change the way that rent payments are treated in the credit industry.