Rental payments to be included in Experian credit score

Experian, one of the UK’s main credit reference agencies, is now including rental payments to assess people’s credit rating, it was announced today.

The change will mean reliable renters who don’t miss a payment will have this vital fact included when their credit score is assessed and this could improve their mortgage borrowing potential.

Experian is one of the three credit reference agencies which collect and hold financial information about adults in the UK to enable lenders to see how they handle credit and borrowing.

As part of a mortgage application the lender will run a credit check and the higher your score, the more creditworthy you will be deemed and the better your chances of obtaining a mortgage.

Up until now, making regular rental payments was not part of the credit process. However, some lenders – such as Skipton Building Society – offer mortgages with better terms for first-time buyers with a history of regular rent payments.

Under the changes, Experian is also expanding its score range from 0–999 to 0–1250, to allow for a ‘more granular breakdown of financial behaviour’.

Experian said the new model recognises behaviours that banks and lenders increasingly value – such as reducing overdraft use, avoiding credit card cash advances and making regular payments on rent and phone contracts.

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 more of the everyday financial behaviours that matter – like paying rent or reducing overdraft use – offering a clearer understanding of the information on your credit report.

“This means people get a more personalised view of how they’re doing financially and more practical ways to improve their score – helping unlock better borrowing opportunities for the future.”

The new score will begin rolling 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 warned to ‘be savvy’ with their credit use

However, whilst this will come as good news to first-time buyers keen to demonstrate their creditworthiness through years of reliable rent-paying, it may also work against other people.

Justin Moy, managing director at Chelmsford-based EHF Mortgages, speaking to the Newspage agency, said would-be borrowers will need to stay on top of their money matters.

“Borrowers will need to be more ‘savvy’ with their finances,” he said, “as this improvement to the Experian Credit Score will include more elements that can both improve and be detrimental to any individual’s score.

“Rent paid may now be a factor in your score, along with your use of overdrafts and other essential utility bills or mobile phone costs.

“Ensuring all these facilities are set up on direct debit is crucial to keeping up to date with payments, and none fall through plain, silly sloppiness.

“A mistake could cost you more on your borrowing costs, not only for mortgages but other credit facilities.

“Even a small amount of poor money management may result in declined mortgages, having to use specialist lenders that will charge much higher rates for the sake of too much Klarna activity, or not paying the minimum amount on your credit card for a month or two.”