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Rental payment data included on credit reports for first time

Experian has announced that it now includes rental payments in its credit reports. This innovative change could make it simpler for renters to get onto the property ladder.

The changes affect 1.2 million tenants who will now see their rent considered on their Experian credit reports. Tenants could find it easier to buy property, access mortgages and secure finance deals. If you’ve ever wondered how to improve your credit score, this step change by Experian could help.

How to improve your credit score – bridging the credit score gap

Tenants who consistently pay rent in a timely fashion and have joined The Rental Exchange Scheme can use this information to improve their credit score and potentially access better credit card, loan and mortgage deals.

Millions of tenants pay out tens of thousands of pounds to rent property every year but struggle to prove that they could pay a monthly mortgage or pay back a personal loan. It’s this discrepancy that Experian is seeking to tackle. This ‘Catch-22’ scenario of paying out a lot of money but not being able to prove mortgage-worthy finances prompted 150,000 fed-up renters to sign a petition in 2017.

The petition is titled: Make paying rent enough proof that you are able meet mortgage repayments. Although it was cut short due to the snap General Election, it was debated by Parliament. And while the Government pushed the decision back onto lenders, The Rental Exchange is tackling the problem head on.

Data integrated into statutory report

More than 150 local authorities, letting agents and social housing providers now report data into The Rental Exchange. Developed by the Big Issue Invest (owned by the Big Issue Group) and Experian, the Exchange can also be used by private renters via different routes.

Tenants who have opted in can see their rent payments on the Credit Expert tool provided by Experian, as well as on their free statutory credit report. It shows their name, address and monthly rent. It’s reported in a very similar way to mortgage payments and is updated every month to show whether the tenant paid on time.

The new data should help tenants build a better credit history, showing a history of regular payments. In turn, this will help them pass credit checks. According to Experian, adding rental information onto credit reports will also help tenants prove their identity online. They anticipate this figure will leap from 39% to 84%, massively improving the kinds of financial services they can access.

Thin-file information

Research by Experian from March 2018, shows that approximately four million UK adults have ‘thin-file’ information. This means they essentially have very little or no information that can be accessed by lenders to check their credit-worthiness. It’s likely that these applicants will fail to secure the best value loans, credit cards or mortgages.

The changes should create a more level playing field for accessing credit. Managing Director of The Big Issue Group, John Montague, says: “We recognised that people in poverty were routinely penalised. The Rental Exchange has succeeded in making more inclusive data available to credit service providers, and it is this data which has the potential to reduce levels of financial and digital exclusion and improve the circumstances of some of the poorest in our society.”

Improving credit report scores

Many lenders are interested in including rental data into their decision making processes for giving out credit. However, it’s not yet clear which firms have pledged support.

For the time being, although lenders can access credit reports for tenants who have opted in to the new scheme, the data won’t yet affect credit scores. This is because it’s not yet certain how lenders will use the information in their decision-making processes. Experian say that they will update relevant credit scores when it receives enough feedback from lenders to explain how they’re using the information.

There isn’t enough evidence as yet to talk specifics in terms of positive or negative impact. However, it’s certain that a well-maintained, regularly paid rental account should add strength to the user’s credit history. Experian estimates that 79% of tenants would see an improved credit score should lenders utilise rental data.

What about other credit agencies?

Lenders can, of course, use any of the three available credit reference agencies to credit score applicants for loans and financial services. Experian is the first agency to include rental data in its free statutory and paid-for credit reports, but others also have plans to do so.

TransUnion (formerly Callcredit) says: “We already take a broad range of consumer financial information into consideration and are investigating and looking at additional sources of data to help enrich a consumer’s credit report. Rental is one payment type in a wider set of non-discretionary financial commitments to potentially adopt, such as council tax, utilities, insurance and telecoms.”

Rhona Parry is Vice President of External Affairs for Europe at Equifax. She says: “The cost of living is a major issue for renters and they often pay more for credit than people with mortgages just because they cannot easily prove to lenders that they pay their rent. Equifax is working hard with landlords and lenders to find safe, easy ways for renters to share their data and access better financial products at better prices.”

James Turner, Managing Director of Turner Little Limited says: “If you’re wondering how to improve your credit score, then measures such as the Exchange by Experian are encouraging. If you’re a council or social housing renting tenant, then ask your landlord to give The Rental Exchange your payment data. For those in private rentals managed by a letting agent, it could be possible to self-report through an Experian partner.

“If you’re renting and you want to buy property in the future, signing up to a way of tracking your rental payments is undoubtedly a good idea. While the information isn’t yet included in your credit file, it’s likely that it will be. Either way, it will help the lender make an informed decision about whether you can pay back a loan or mortgage.

“We can expect to see the other agencies follow suit over the next few years, and for lenders to be clear about how they will incorporate this information into credit files. There are more people renting in the UK than ever before, and it’s vital that lenders begin to treat both homeowners and renters equally when it comes to granting loans and financial services.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.