Experian, one of Britain’s leading credit reference agencies, is now recording rental payments to assess people’s creditworthiness, it was announced today.
The change will mean that reliable renters who don’t miss a payment will take this crucial fact into account when their credit score is assessed and this could improve their mortgage potential.
Experian is one of three credit reporting agencies that collect and store financial information about adults in Britain so that lenders can see how they handle credit and loans.
As part of a mortgage application, the lender carries out a credit check. The higher your score, the more creditworthy you are considered and the better your chances of getting a mortgage.
Until now, paying the rent regularly was not part of the credit process. However, some lenders – such as Skipton Building Society – are offering mortgages with better terms for first-time buyers with a history of regular rent payments.
As a result of the changes, Experian is also expanding its score range from 0–999 to 0–1250, to allow for a “more detailed breakdown of financial behavior.”
Experian said the new model recognizes behaviors that banks and lenders increasingly value – such as reducing the use of overdrafts, avoiding cash advances on credit cards and paying rent and phone contracts regularly.
Edu Castro, managing director of Experian Consumer Services, UK & Ireland, said: “The way people manage their money has evolved, and our score has evolved too. Our new Experian Credit Score better reflects the everyday financial behaviors that matter – such as paying rent or reducing overdrafts – and provides a clearer understanding of the information on your credit report.
“This means people get a more personalized view of how they are doing financially and more practical ways to improve their score – unlocking better borrowing opportunities for the future.”
The new score will be rolled out from November and will reach all UK customers by the end of the year. Existing customers will see their score automatically updated during this period and will receive an email once their smarter Experian Credit Score is available.
Borrowers were warned to ‘be smart’ with their credit use
While this will be good news for first-time buyers eager to prove their creditworthiness by reliably paying rent for years to come, it could work against other people as well.
Justin Moy, director of EHF Mortgages from ChelmsfordSpeaking to the Newspage office, he said potential borrowers should keep their finances informed.
“Borrowers will need to be more ‘smart’ with their finances,” he said, “as this improvement to the Experian Credit Score will include more elements that can both improve and detract from an individual’s score.
“Rent paid can now be a factor in your score, along with your use of overdrafts and other essential utility bills or mobile phone charges.
“Ensuring that all these facilities are set up on direct debit is vital to keeping up to date with payments, and that none of them expire due to simple, foolish carelessness.
“A mistake can cost you more money, not only for mortgages but also for other credit facilities.
“Even a little bit of poor money management can result in mortgages being declined, using specialist lenders who charge much higher rates because of too much Klarna activity, or not paying the minimum balance on your credit card for a month or two.”