As many as 50 million Americans don’t have a credit file with the big three credit bureaus. This puts them at risk in an economic climate where credit scores dictate how one can access financial opportunities. This problem affects various demographic groups unequally. Currently, 26% of Hispanic consumers and 27% of Black consumers are credit invisible or unscorable. Only 16% of White and Asian consumers encounter these barriers. Rent is now typically the single biggest cost to millions of Americans who don’t own a home. When rent payments are not able to be reported, it again exacerbates these challenges.
It’s fair to conclude that renters across the United States are largely doing their part and paying their dues on time. Sadly, the prevailing credit scoring models penalize their good behavior. Furthermore, more than 90% of tenants pay their rent on time. Yet, absent any reporting requirement, these otherwise responsible behaviors do not improve their credit ratings. At the same time, millions of Americans find it nearly impossible to establish their creditworthiness. That’s particularly true for immigrants, whose foreign credit histories U.S. systems usually refuse to acknowledge.
The Impact of Credit Invisibility
The reality of credit invisibility goes beyond just numbers and demographic shifts. It has real world effects on people who want to take out loans or buy a home. Millions of consumers struggle to get approved when they apply for their first credit card or personal loan because they have no established credit history. This phenomenon leads to worse terms or outright denials. As a result, many people end up seeking help from predatory lenders with outrageous interest rates.
Wemimo Abbey, cofounder of fintech company Esusu, emphasized the urgent predicaments that millions find themselves in without credit scores. He shared his personal experience:
“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.”
This story is representative of the experiences of many who are considered to be credit invisible. Abbey calculates that the moneyed system misses an astounding $5.3 trillion in identifiable economic activity. This gap is a result of making no consideration for on-time rental payments when credit scores are calculated.
Rent Reporting Initiatives
Despite these hurdles, solutions like Esusu are popping up to fill this gap in the credit reporting ecosystem. To start with, only 10% of rent payments were ever reported to credit bureaus. This number is growing quickly as more landlords and property managers understand the benefits of sharing this data. Privately run housing programs frequently have formal links to credit reporting firms. They often impose ridiculous fees on renters to report their on-time rent payments.
Abbey’s passionate advocacy for an inclusive financial system rang strongly as she said,
“We have democratized access because you have a long tail of people who don’t live in commercially managed housing.”
The startup community and non-profits are beginning to adopt a movement. Their goal is to connect renters and available credit opportunities. By reporting rent payments, they can provide individuals with a pathway to improving their credit scores and accessing better financial products.
The Future of Credit Scoring
As awareness around the importance of including rent payments in credit assessments rises, so does the potential for systemic change. Credit scores typically run from a low of 300 to a high of 850. A higher score indicates that you have a greater capacity to manage debt and pay your obligations, such as credit cards. Millions more don’t have a rental payment history—their invisibility feeds the cycle of exclusion. This unfortunate reality restricts their access to critical financial lifelines.
Credit score improvements can show up within 30 days of rent payments being reported. The process could fundamentally reshape the financial reality for millions of renters. Many credit bureaus provide a grace period, allowing people time to rectify late payments. Some others don’t give this and this can negatively impact their credit score.