Freddie Mac Wants Landlords to Report Rent Payments. That Could Help Renters Build Credit

Many landlords don't report rent payments. That could soon change.

Having good credit could spell the difference between getting approved for a mortgage, credit card, or personal loan and getting rejected. But sometimes, it can be difficult to build credit.

Some people prefer not to use credit cards, but rather pay for their purchases in cash. Credit card usage can actually help build a credit history, though. Similarly, those without loans or mortgages to pay off might suffer from a credit score perspective due to a lack of credit history.

A big reason for this is that rent payments aren't always reported to the three major credit bureaus -- even though years of timely payments could help many consumers build credit. Now, Freddie Mac is trying to change that by incentivizing landlords to report rent payment activity.

A potential boon to consumers

Mortgage borrowers who pay their home loans on time will generally see their credit scores rise as a result of that positive activity. But renters who pay their landlords on time often get nothing out of it from a credit score perspective.

While it's possible for landlords to report rent payments to the credit bureaus, many opt not to in order to avoid the extra work since it's not required. Now, Freddie Mac is trying to get more landlords to start reporting on rent payments. It's offering up closing cost credits for multifamily loans to entice landlords to go this route.

Just as regular home buyers pay closing costs when they take out a mortgage, landlords also pay closing costs on their mortgages when they purchase multifamily properties (properties with multiple units). Freddie Mac has arranged it so that landlords who agree to report rent payments can receive a credit on their closing costs to make them less expensive. Those landlords will be matched up with Esusu, a credit-building fintech, which will deliver rental payment reports from landlords’ property management software to the credit bureaus. That will ease the administrative burden for landlords.

One potential drawback of reporting rent payments

Reporting rent payments could help a lot of people build credit. But tenants should also be aware that if reporting on rent payments becomes more commonplace, late payments can cause major credit score damage.

In fact, of the various factors that go into calculating a credit score, payment history carries the most weight. It speaks to how timely consumers are with their bills and how responsibly they borrow. Being late on even a single rent payment could tank an otherwise strong credit score.

Some people struggle with their credit scores because they've racked up a lot of debt or have fallen behind on bills and have late payments on their record. But others struggle to boost their credit simply because they don't have enough of a payment history established. If more landlords start reporting rent payments to the credit bureaus, it could help a lot of people build or boost their credit. That could, in turn, open the door to more affordable borrowing opportunities for the people who need them.