If you are currently a private rental tenant and have aspirations of owning your own home someday, the future has just got a lot brighter. A free, new scheme has been launched which means you can improve your credit score and credit history by simply paying your rent on time. The Rental Exchange scheme will record your rent payments and send the results to Experian, one of the UK’s biggest credit reference agencies. It will mean your rental payments will appear on your credit history for the first time.
What is Rental Exchange?
Rental Exchange was launched at the end of March 2016 in order to allow private tenants to be able to improve their credit score by paying their rent on time.
This is how it works:
- You pay your rent by standing order to a third party called Credit Ladder.
- Credit Ladder will forward your rent to your landlord on the same day and report the payment to Experian, whether it was on time or not.
- Experian will then update your credit file accordingly.
If you have always paid your rent on time, and a recent study conducted by Experian suggested that 98% of private tenants do, this is a fantastic way to boost your credit score as well as creating a positive history on your credit file for lenders to check. That same study found that 78% of private renters want rental payments to appear on their credit files, and why wouldn’t you? What better way to show any potential mortgage provider that you responsible when it comes to paying your bills.
Anybody who is a private tenant in the UK can apply for Rental Exchange, you just need permission from your landlord or letting agent. Your landlord or letting agent may try to charge you an administration fee for the service. Experian have confirmed that none of the letting agents they have spoken to intend on charging, but with thousands of landlords and letting agents out there, it is good advice to double-check.
Is it worth it?
Anybody who has aspirations of owning their own house, build a credit history and improve their credit score should jump straight in this. A good credit rating is key to being accepted for a mortgage, if you always pay your rent on time you should want that reflecting on your credit file.
By improving your credit history, you improve your credit score. So, having your – on time – rental payments recorded on your credit file will help to give your credit score a boost. Winner!
If you have a limited credit history the scheme is perfect for you. It is a fantastic way to show potential lenders you are responsible and pay your bills on time.
How will it affect my credit file?
Your credit rating is vital and everyone should take steps to improve and maintain it. Lenders check your credit file to see you credit history and attempt to predict your future based on their findings. That is not an easy task if you have no credit history to check, Rental Exchange is aimed at providing the history, which in turn improves your credit score.
By paying your bills on time, you make yourself much more attractive to potential lenders, giving you a greater chance of acceptance.
Under the Rental Exchange scheme, Experian will record your rent payments, the same as they would do for loans, credit cards and utilities. So far only Experian on board with the scheme, although expect the others to follow their lead shortly when they recognise the benefit.
Any rental payments you make will not appear on your credit file until the end of 2016, but they will be backdated to when you first signed up. If you are currently saving for a mortgage, the timing is perfect and not something you should be missing out on.
How will lenders judge rent payments?
The biggest factor for any lender is stability. By showing consistent payments made on time you are showing you take paying your bills seriously and you act responsibly.
Most lenders currently do not include renting in their scoring yet, expect to see that change swiftly.
How do I sign up?
Seek permission from your landlord or letting agent
You must gain consent from your landlord or letting agent first before paying your rent via credit Ladder. They will be notified when you sign up, and will have to confirm that they are happy with the new arrangement.
Register your details with Credit Ladder
Sign yourself up by going direct to the Credit Ladder website and fill out the registration form, with your own details and those of who you pay your rent to. Credit Ladder will confirm with your landlord or letting agent they are happy for you to pay via the scheme.
Set up a standing order
Set up a standing order to credit Ladder, they will ensure your landlord or letting agent receives the payment the same day. They will then report the payment to Experian.
What if my rent amount changes?
If you rent increases, simply contact Credit Ladder and adjust the payment amount. They will confirm the increase with your landlord or letting agent. When your tenancy expires, you should cancel your standing order with your bank and inform Credit Ladder.
So with news like this there is no time to lose. This is massive news for private tenants who have a long history of on time rent payments that have never had any influence on their credit scores. Will you be signing up?