Millions of hardworking Americans pay rent on time every month, but for years they got little to no credit for it. That’s because, until recently, Fannie Mae and Freddie Mac have evaluated homebuyers’ credit with FICO scores, which do not utilize rent payments. But that’s finally starting to change thanks to leadership from the Trump administration, specifically thanks to recent actions by Federal Housing Finance Agency (FHFA) Director Bill Pulte to promote the inclusion of rent payments as additional data in renters’ credit scores.
This is a dramatic shift from past practices. In a time where homes were relatively affordable, this was not a death sentence for young wannabe-home buyers. But today, housing prices are stratospheric and credit scores, particularly among young people who have few ways to improve them, are dropping precipitously. Young renters are essentially trapped in a vicious circle: making enough to pay rent, but never being able to build up credit to be able to switch from renting to buying.
This one-two punch has made it harder than ever for families to receive a mortgage, buy a home, and achieve the American dream. Including more data, such as rent payments, into credit modeling has the potential to improve the accuracy of the scores and to reverse this disaster. It’s a commonsense move that puts first-time and working-class homebuyers front and center. By incorporating this data, the FHFA, which regulates and supervises Fannie Mae and Freddie Mac, is giving renters a fair shot at homeownership by recognizing responsibility and rewarding those who play by the rules.
But rent reporting alone won’t work unless it’s paired with the right credit framework. And there are plenty of ways to get credit frameworks wrong. The Biden administration was pursuing such a false path by planning to adopt a bi-merge credit reporting system, which would have allowed lenders to only look at two, instead of three, credit reports. When lenders rely on fewer credit bureaus for a potential homeowner’s credit data, this lowers the chances that the lender will utilize credit data that includes rent payment history—potentially limiting families’ chances of receiving a mortgage to buy a home.
Not all landlords report to all three credit bureaus; in many cases they pull just one report, or even two, which risks leaving some renters invisible. That’s why Director Pulte ensured that the FHFA would stick with the tri-merge system while doubling Fannie Mae and Freddie Mac’s credit budgets to $2 billion. This will ensure, in Pulte’s words, “more Americans will have access to new affordable rental properties across the country.” When taken in concert with the inclusion of rent in credit scores, it means more Americans will likewise have a chance to raise their scores and ultimately, move from renting to buying.
Congress too has been working with FHFA to ensure that lenders use a tri-merge system.
Republican leaders have been clear on the need to include rental payments in credit reporting. Sen. Tim Scott (R-SC) and his colleagues on the Senate Banking Committee previously encouraged the FHFA to stick with a tri-merge system, warning that abandoning it would undermine reforms meant to expand opportunity. In May, Rep. Scott Fitzgerald (R-WI) led similar efforts in the House, noting that keeping tri-merge intact is about protecting first-time homebuyers.
For wealthy borrowers with long-established credit, the credit modeling system doesn’t make much difference, and neither does rent reporting. But for young and working-class Americans and an administration laser-focused on helping them, these moves will be a game-changer.
FHFA Director Bill Pulte’s decision to allow for alternative data in credit scoring models will open new doors for borrowers whose rent isn’t fully recognized today. Working class families and the younger generations who once thought the dream of homeownership was out of reach may soon have a path forward. By backing rent reporting and the tri-merge credit system, Republicans are helping restore that opportunity. In doing so, they are showing they stand with the families who work hard, play by the rules, and still believe in the American dream of owning a home.