Almost 5.4 million people are renting property in the UK. According to Experian, 90% of private tenants pay their rent on time. However, unlike mortgage payments, these rent payments aren’t recorded on their credit file. Personal Loans Now consider whether this should change.
- Who would benefit from rent payments being recorded on credit files
- The effects of a poor credit score
- The schemes which allow tenants to include rent payments on their credit file
- Whether they will make rent payments a mandatory part of Britons’ credit records
Rent Payments and Credit Files
In this article, we look at the future possibility of rent payments being automatically recorded on Britons’ credit files. Who would this help, and what effects would it have on their lives? Finally, we examine what voluntarily schemes are already in operation, and how they work.
Who would Benefit from Rent Payments being Recorded on Credit Files?
The first group to benefit from rents being recorded on credit scores are those with a poor score who wish to improve their credit rating. As a priority debt, most tenants ensure that their rent is always paid on time. If these regular payments were sent to credit reference agencies, it would do a great deal to increase their score.
Another group who would be helped are the young who have not yet had the chance to build up their credit score. Having little or no credit history is as bad as having a poor rating since financial institutions are unable to judge how they deal with credit. When tenants have to move, a prospective landlord carries out a credit check or asks for references. If rents were included in people’s credit files, it would reassure them that tenants are trustworthy.
What are the Effects of a Poor Credit Score?
Campaigners believe that having rent payments on a credit file would do a great deal to tackle the problem of the poverty premium. At the moment, those with a low score are unable to access mainstream credit facilities. Because of their past credit history, they have to borrow money from high-cost short-term loans direct lenders. This costs them much more in high interest and fees than other borrowing options.
They also pay more for basic goods and services. They have to purchase goods from rent-to-buy firms so that ordinary household appliances and furniture end up costing at least triple their retail price. Or if they are accepted for a personal loans for bad credit they may end up paying very high interest rates. Similarly, energy providers will only allow them to use pre-paid meters whose tariffs are significantly higher. Regular rent payments would be evidence of responsible money-handling. As a result, creditors would be much more likely to offer them mainstream borrowing options so they could save money.
Which Schemes Allow Tenants to Include Rent Payments on their Credit File?
- Social Housing Tenants
- Rental Exchange: For Both Private & Social Housing Tenants
Since 2014, a scheme signs tenants of social housing up for a scheme where their rent payments are included on their credit file. Tenants can choose to opt out, and it has a take-up rate of 20%.
Set up in 2015, the Rental Exchange is a scheme run jointly by Credit Ladder and Experian. This scheme allows tenants (with their landlords’ approval) to pay their rent to a third party, Credit Ladder via standing order on its due date. This payment is then sent to their landlord on the same day, and an entry is sent to Experian to state that the rent has been paid on time.
The initiative is completely free for both tenants and landlords. Participation is voluntary, and those interested can register online by giving details of their landlord’s name, the size of their rent and when it is due. This information is later verified by their landlord.
Will They Make Rent Payments a Mandatory Part of Britons’ Credit Records?
In October 2017 MPs debated the issue of including rent payments on credit files after an e-petition on the subject had collected around 147,000 signatures. The move was also supported by organisations like the Residential Landlords’ Association. Although there was general agreement in Parliament that the change would be beneficial, there are no immediate plans for drafting a bill and voting on legislation to make it compulsory.
What Can I Conclude about Rent Payments Improving Credit Scores?
Financial institutions have been following the Rental Exchange initiative with interest. None have agreed that rent payments will definitely be taken into account when accessing creditworthiness. but have said it would be one of the factors they’d bear in mind before reaching a decision. This non-committal answer is the best we can probably expect from naturally cautious High Street banks. Having rental payments included on credit files won’t be a cure-all for all the people suffering from the poverty premium. This is because payment of priority debts isn’t the same as handling credit. However, it will be a step in the right direction.