More than 50 million Americans have insufficient credit history with the three large credit bureaus, Experian, Equifax, and TransUnion. This lack of credit history prevents them from obtaining critical financial services such as loans and credit cards. What’s even more alarming is that marginalized communities are being ignored in this process. Nearly 26% of Hispanic consumers and nearly 27% of Black consumers are credit invisible or unscorable. In comparison, this is an issue for just 16% of White and Asian consumers.
The experience of immigrants makes this challenge even greater. In fact, numerous immigrants find their foreign credit histories do not count here in the U.S. This trend only increases the challenges they face in ever winning their own financial stability. Contrary to popular assumptions about renters, over 90% of renters pay —and predominantly by— their rent on time. Yet these payments go largely unreported, leaving a huge hole in their credit profiles.
The Cost of Credit Invisibility
This absence of reported rental payment has huge consequences for millions of Americans. That’s because $5.3 trillion in potential credit goes unrewarded when timely rent payments aren’t reported. It makes criminals out of renters who reliably pay their rent on time. Combined, they will find it difficult to establish their credit scores in an appropriate manner. Credit scores typically range from 300 to 850. They impact how an individual handles debt overall and their ability to pay bills on time, such as credit card bills.
Commercially managed housing service providers already have direct pipelines into one or all three of these major credit reporting agencies. These services typically require landlords to pay to report their tenants’ rent payment histories, which puts access out of reach for most renters. Consequently, the very people who most need to be actively establishing their credit profiles still face invisibility challenges.
The Initiative for Change
Esusu, a fintech company dedicated to increasing credit visibility for renters, has taken great strides to alleviate this concern. At first, Esusu’s platform only reported 10% of rent payments to credit bureaus. Yet the demand for its services has surged, skyrocketing the company’s valuation to $1 billion. Esusu’s mission is to increase the proportion of rent payments that are reported to credit bureaus. Through this work, we are further enabling people to establish positive credit histories.
The process is relatively straightforward. Once a rent payment is made, it is expected to show up on the relevant credit reports roughly 30 days after payment. This period is an invitation, not a requirement, but it could provide useful latitude. Some agencies will leave you with only 30 days to make up missed payments, negatively impacting your credit score.
Building Credit Through Alternative Means
For people who have a hard time establishing their credit history, there are other ways to go about it. One popular strategy is to be added as an authorized user on a relative’s or close friend’s credit card. This method enables the new users to take advantage of another person’s good credit reputation while they are in the process of creating their own.
The landscape of credit visibility is just beginning to change with the growing success of initiatives such as Esusu. The obstacles for millions of Americans are far from over, as they still face a complicated and confusing financial landscape.