Careful With Money, Invisible to Lenders

Somewhere, a 47-year-old woman pays her rent on the first of every month, carries no credit card debt, and has never missed a loan payment.

Because she has never had a loan.

When a lender checks her credit, the problem isn’t a bad score. She may have no score at all.

The financial industry calls this being “credit invisible,” and it illustrates one of the peculiarities of America’s credit system: Being extremely careful about borrowing money can actually make it harder to prove you are a good credit risk.

Credit scores are largely built around a person’s history of borrowing and repaying money. If you have never used a credit card, financed a car or taken out another reported loan, there may be very little for the credit bureaus to measure.

In other words, avoiding debt can make you nearly invisible to the system designed to determine how well you handle debt.

And it isn’t a small group.

The Consumer Financial Protection Bureau estimated that about 7 million adults were credit invisible as of December 2020. Another 25.3 million had credit records that were too limited or too old to generate a conventional credit score.

For renters, one obvious question is: What about the rent?

It is often the largest bill a household pays every month. Someone might faithfully pay $1,500 or $2,000 in rent for years without those payments building a traditional credit history the way mortgage payments generally do.

That is beginning to change.

Lenders increasingly consider verified rental payments in lending decisions, including some mortgage underwriting. Rent payments reported to credit bureaus can also help establish a credit record for someone with little or no traditional borrowing history.

There is a catch.

Someone has to report those payments.

Many landlords still do not routinely report rent to the major credit bureaus. Renters who want to build credit this way should first ask their landlord or property manager whether the property already participates in a rent-reporting program. Some programs are paid for by the property owner and cost the tenant nothing.

If not, consumers can sign up for certain rent-reporting services themselves.

But the services work differently.

Some verify rent by examining transactions through a linked bank account. That may work well for tenants paying electronically but can be a problem for people who pay with cash or money orders. Other services verify payments directly with the landlord, making the payment method less important.

Before paying for any rent-reporting service, consumers should ask two important questions.

First, which of the three major credit bureaus—Equifax, Experian, and TransUnion—will receive the information? A service that reports to only one or two may not help when a lender checks a different bureau.

Second, find out exactly what gets reported. Does the service report only successful payments, or can late and missed rent payments also appear?

Rent reporting isn’t a magic shortcut to excellent credit, and its effect will vary depending on a person’s overall credit history and the scoring model being used.

But for someone who has spent years paying the biggest bill in the household on time while remaining virtually invisible to lenders, it offers something important:

A chance to finally get credit for being responsible with money.