Credit scores to include rental payments for first time
One of the UK’s leading credit unions said rent payments will be reflected in credit scores.
Experian said it was overhauling its scoring system to better reflect “more of the day-to-day financial behaviors that matter,” including things like “paying rent or reducing overdrafts.”
The new system will see the maximum credit score a person can receive increase from 999 to 1250, and will also provide further guidance on how borrowers can improve their creditworthiness.
The names of Experian’s different scoring groups have also been overhauled; The categories “thin” and “very thin” were removed and the color red was used.
Groups will now be named Excellent, Very Good, Good, Fair and Low.
Customers in the lower band are given instructions on how to increase their scores.
A spokesperson for Experian said tenants must opt-in to have their rent payments counted.
“Like other data we will soon include in the updated score, this shows that more lenders are now factoring positive rental history into their decisions,” they said.
“This is great news for tenants who pay on time every month.
Missing rent payments can have a negative impact on someone’s credit score, they added.
Credit scores are used as a broad indicator of a borrower’s ability to repay the loan.
A low credit score can make it difficult to get a mortgage, get a loan, or get a lease purchase agreement for a car.
Other behaviors taken into account by the new system include reducing overdrafts, avoiding credit card advances and making mortgage overpayments.
It will also look in more detail at recurring charges on mobile phone contracts and how often a customer can change provider.
Experian stressed that the changes won’t affect someone’s ability to get a loan, but mortgage, loan or credit card eligibility remains unchanged.
The new scoring system will be implemented this month, with the aim of being available to all customers by the end of the year, and will also be available in the free version of Experian’s service.
There are three credit rating agencies in the UK; the other two are TransUnion and Equifax, and Monday’s announcement does not differentiate those organizations’ credit scores.
The changes also mean borrowers will be able to change the credit groups they are in.
The new system means 44% of customers will likely lower their points range after the changes, 42% will likely increase their points range, while 14% say their points range will remain the same.
