Moving into a rental property, but hoping to buy a place of your own? You can now use rent payments to help improve your credit history, making it easier to get a mortgage.
When it comes to buying a property, it’s important to have a healthy credit history, as this affects your credit score - the number which lenders use to decide whether or not to lend to you, and at what rate. A good rating can mean a better mortgage deal and some serious monthly savings on repayments.
Homeowners have long been able to boost their credit score by paying their mortgage on time. By contrast, tenants are often penalised because their regular rental payments don’t count towards their credit history.
The good news is, things are changing. There are moves to start using rental payments to bolster credit scores and this should help level the playing field for tenants – and help bridge the gap between renting and owning a property.
It should also make it easier for tenants to get accepted for a mortgage at some point in the future and should mean that taking the first step on to the property ladder becomes that little bit simpler. Here we take a closer look.
How to use rental payments to boost your credit score
CreditLadder is a free-to-use rent-recognition platform that enables renters to add their payments to their credit history.
As a tenant, the process is straightforward. You simply need to give the platform permission to connect to the bank account from which you pay your rent.
CreditLadder then verifies your rent payments and sets you up with an account that will track your rent payments every month. CreditLadder reports these to credit reference agency, Experian, and Experian then updates your credit file with this information.
By paying your rent on time – and having your rental payment track record added to your credit file – this can improve your credit score. It could be a big benefit to people with little credit history.
CreditLadder is one of a host of new services being backed by HM Treasury to find a way to help tenants improve their credit scores.
Bud, a financial network, recently partnered up with CreditLadder, to create a simple way for tenants to report rents so they can count towards their credit scores.
Elsewhere, with RentalStep, all your rent payments are recorded. Your landlord or agent then verifies these payments, and RentalStep reports this into Experian’s rental exchange – and your credit file gets a boost.
What does a good credit score mean?
Your credit report is a kind of ‘financial CV’ which shows your outstanding credit and how well you’ve managed credit in the past.
Having a good credit score means you are more likely to get accepted when you apply for any type of credit, such as a mortgage, credit card, or loan. It also means you are more likely to be offered a competitive rate.
What does a bad credit score mean?
While services such as CreditLadder offer a boost to those who pay their rent on time – as this can mean a better credit score – you need to be aware that it works both ways.
If you are someone who struggles to meet their rent each month, such a service could damage you credit score and leave you worse off.
Being signed up to one of these services means there is less room for error when it comes to paying your rent, as if you are late – or fail to make a payment – this could harm your chance of getting credit in the future.
How can I check my credit rating?
When contacting these agencies, it’s important to realise that these firms are only ‘custodians’ of your report – they don’t determine what’s in it.
They collect information about your payment behaviour from banks, building societies, insurers and other organisations, which can be used to assess your likelihood of repaying a debt. This is then reflected in your credit score.
You can get a basic credit report for just £2, but pay more for a more detailed breakdown. With some of the more comprehensive versions, you get a free period which then rolls into a pay-monthly subscription (which can usually be cancelled at any time). You can compare services and packages here.
Get mistakes corrected
If you spot a mistake on your credit report, you should contact the credit reference agency and get this amended.
If you spot anything unusual or suspicious, get in touch with the agency immediately. It is also possible to get a ‘notice of correction’ added to your file, if, say, a late payment was due to a particular reason, such as ill health or losing your job. This won’t alter your credit score, but lenders will see this when considering an application.
What else can I do to boost my credit score?
- Always pay bills on time. This includes all utility bills and credit card bills, as late payments will show on your credit file. Set up direct debits to ensure bills are paid on time each month.
- Don’t breach borrowing limits.
- Pay down your debt. This is particularly important before applying for more credit.
- Only apply for new products when you really need them. Frequent applications for credit in a small period of time can lower your score.
- Close any credit accounts you are no longer using.
- Register to vote. Lenders look at the electoral roll to check the address matches the one you’ve given. It’s very simple to get register on the electoral roll – or to update your details. Use the Government’s register to vote service.
- If you have a ‘thin’ credit history, you can build your score by applying for a credit card – and using it. However, you should only spend small amounts each month, and repay the balance in full. This will demonstrate to lenders that you can manage debt responsibly. Read more at: Important steps to improve your credit score.