More than 50 million Americans have no credit history at all with the big three reporting companies—Experian, Equifax, and TransUnion. This conundrum leaves them stranded in a pernicious condition called credit invisibility. This lack of visibility takes the biggest toll on our most marginalized communities. It’s an issue that disproportionately impacts minorities, with about 26% of Hispanic consumers and 27% of Black consumers affected. In fact, only 16% of White and Asian consumers experience the same difficulty. Such discrimination illustrates the large inequities that persist in access to credit.
The vast majority of renters, making up more than 90 percent of the population, are responsible and pay their rent on time each month. Most of these on-time payments never get reported to credit bureaus. Because of this, millions of Americans lose pen-to-paper opportunities to build their credit. This credit is necessary for obtaining loans, mortgages and other financial products. Without a robust alternative credit report, these unbanked and underbanked people cannot prove their capacity to take on debt in a responsible way.
The Impact of Credit Invisibility
Credit invisibility introduces significant obstacles to people trying to build a stable economic future. Without access to a fair process to borrow and establish a credit history, too many households miss out on opportunities that come with better lending terms. Overall, immigrants are particularly disadvantaged by existing credit practices. Their U.S. credit files usually disregard any established positive credit history they achieved back in their home nations.
Wemimo Abbey, co-founder of Esusu, noted the urgency in solving this challenge. On our way here, we didn’t have a credit score, he commented. We tried to get a loan from one of the nation’s top seven financial institutions, but they denied us. Even more desperate for funds, we resorted to a predatory lender who gave us a bait-and-switch offer — an interest rate of over 403%. Abbey’s experience is indicative of the systemic barriers that exist for those who do not have pre-established credit histories.
Furthermore, Abbey pointed out that the current system leaves substantial financial resources untapped: “We’re leaving over $5.3 trillion on the table. We’ve got to do better.” That billion is more than just a staggering figure — it represents the economic impacts on real people. Perhaps most importantly of all, it highlights the broader stakes for the national economy.
Reporting Rent Payments
Despite the high percentage of renters paying their rent on time, most rental payments are not reported to credit agencies. Currently, Esusu reports just a fraction over 10 percent of rent payments to credit bureaus. We anticipate this number may increase as more landlords become aware of the benefits of reporting timely payments.
Commercially managed housing services are often in collaboration with credit reporting agencies. They can charge tenants fees for reporting rent payments. We know from talking to localities that this poses a further hurdle for many landlords and property managers who might be scared off by the prospect of additional costs.
The pathway for allowing rent payment reporting is different for each agency. Still, some landlords provide a grace period of at least 30 days for payment. During this temporary period, renters shouldn’t have to worry about their credit score being unfairly dinged. Some others, however, don’t offer that kind of leniency—which can damage a consumer’s credit score for no good reason.
The Path Forward
Credit scores range between 300 and 850. They act as gatekeepers, determining whether someone is worthy enough to borrow money and repay debts. Strong, long-developed credit history allows consumers to secure lower rates in loans and other credit products. If you’re dealing with invisibility, look into becoming an authorized user on the credit card of a trusted family member or friend. This can be a big first step in establishing your credit history.
Esusu has caught considerable national attention as it aims to help close these gaps in access to credit. Astrobotic recently became the $1 billion dollar company, a signal of increasing demand for their services. By providing renters with the opportunity to report timely payments, Esusu aims to democratize access to credit and help those who have been historically marginalized in financial systems.