3 Ways to Help ‘Invisible Credit Score’ Buyers

45M adults have thin or nonexistent credit scores. For many it’s because they don’t buy things using credit. To secure a mortgage, they should create a paper trail.

NEW YORK – Not having a credit history, often referred to as being “credit invisible,” can make it harder to buy a home or car, finance an education, and secure banking products and other services.

Today, over 45 million adults in America have no credit score, according to Freddie Mac. If that describes you, don’t panic. Freddie Mac is offering three strategies to take you from invisible to visible, and help you start building a credit history.

1. Report rent payments. Millions of Americans’ largest monthly payment is rent. However, less than 10% of renters currently see their on-time rental payments reflected in their credit scores, putting them at a significant disadvantage to homeowners.

On-time rent payments can be used to build credit with all three major credit bureaus. If you are paying your rent on time, ask if your landlord is reporting your payments. If not, find out if they can. Although you can report rent payments yourself by paying through a rent reporting service, many such services charge fees, so it’s best if your landlord reports on-time payments on your behalf.

Unfortunately, the most common way rents are reported to credit bureaus today is when there’s a missed payment that’s gone to a collection agency. A new initiative by Freddie Mac is flipping the script by incentivizing property owners to report their tenants’ on-time rental payments.

Freddie Mac is providing closing cost credits on multifamily loans for owners of rental properties who agree to report payments through Esusu, a data processing and storage platform whose technology securely delivers rental payment data from property management software to credit bureaus. The program automatically unenrolls renters if they miss a payment, and it allows renters to monitor their payment data and credit score through its website and mobile app.

Finally, the Esusu platform ensures compliance with industry standards, eliminating an administrative burden that represents the single largest hurdle to reporting rental data.

“Making rent count will help solve one of the most persistent challenges facing renters who want to build credit,” says Lauren Garren, vice president and chief business officer, Multifamily, Freddie Mac. “This effort helps level the playing field for renters who prioritize making their rental payments on time.”

2. Consider secured credit cards. A secured credit card, designed for people with limited or damaged credit, requires you to pay a security deposit. The bank extends a credit line matching the amount of the security deposit, and it holds onto your deposit as collateral for as long as you have the card. For this reason, secured credit cards don’t charge the same high fees as unsecured credit cards.

Many secured cards include a graduation feature, allowing you to move to a traditional credit card after establishing a pattern of consistent payments. Some card issuers may automatically review your account to see if you can upgrade, but you may have to ask your card issuer whether you’re eligible. By transitioning to an unsecured card in this way, you’ll get your deposit back without negatively affecting your credit by closing an account.

3. Consider store credit cards. From retail chains to gas stations, many stores offer credit cards that tend to be easier to qualify for and usually have low credit limits, making them a good option if you’re credit invisible. However, they often have high interest rates. By making periodic purchases with your store credit card and paying them off immediately, you can build a credit record and get used to managing a credit card.

For additional credit-building strategies, use CreditSmart, Freddie Mac’s suite of financial capability resources.

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