Does paying rent help to boost your credit score?
Credit scores - one of those seemingly vague, adulty things that few of us think about until we have to. So brace yourself, we’re about to dive in head first.
The good, the bad & the ugly
When it comes to applying for money, whether that’s for a mortgage, a credit card or financing a car, banks want to make sure you’re financially stable. And the most reliable way to do this is by looking at your credit score.
A good score suggests you’re good with money, and therefore a safe bet to lend to. A bad score, on the other hand, can be a red flag. This is because the credit score factors in any previous bankruptcies, debts and late payments.
On top of this (and most frustratingly of all) a lack of financial history can also lead to a poor score.
Your financial history is a record of your loans (for example for a mortgage, credit cards, and student loan) and details whether or not you’ve paid them on time. Don’t have a mortgage? Not paying off a credit card? Then it might look a bit bare. The reporting agencies then have little evidence in front of them to suggest you have the ability to repay debts on time. As a result, you could be considered ‘unreliable’ and therefore be given a low score.
In the UK, there are 3 major credit reporting agencies that give you a score: Equifax, Experian, and TransUnion. It’s simple to find out; just visit their website and fill in a few details.
Can renting help your credit score?
In short - yes, but not automatically.
Up until recently, paying rent was not factored into your financial history, whereas paying off a mortgage was. It can be hard enough getting your foot on the property ladder, and having a low credit score due to a limited financial history makes things even harder for renters.
The majority of us pay our rent on time (often at huge expense) and have nothing to show for it. In contrast, a homeowner’s score is boosted every time they make a successful, on-time mortgage payment. Not fair.
In an effort to help tackle the inequality between renters and homeowners, the Big Issue group partnered with Experian and created The Rental Exchange.
So, what is The Rental Exchange? It’s an initiative which enables tenants to have their monthly rent payments recorded on their financial history, just like mortgage payments would be. So therefore, as long as your rent goes out on time, you can rest easy knowing that your credit score will be creeping up. But remember - one late payment and your credit history will take a hit so set up a direct debit, mark your calendar, pop a reminder on the fridge - just don’t forget!
The Rental Exchange will incorporate a tenant’s payment history into their credit file at no cost to either the housing provider or the tenant. It’s a win-win: you get to boost your score, and it benefits the landlord by encouraging on-time rental payment.
How to set up The Rental Exchange
The Rental Exchange has made it as simple as possible to make sure your rent is reported:
- If you are a council or social housing tenant: contact your landlord and ask them to report your rental payment data into The Rental Exchange.
- If you are a private tenant and your managing agent or landlord has more than 500 other properties: ask them to report your rental payment data into the Rental Exchange.
- If you are a private tenant and your managing agent or landlord has fewer than 500 other properties: you can self-report your payment data through either CreditLadder or Canopy.
- Once you’ve chosen which site to go with, follow the instructions to connect the bank account from where you pay your rent. They will then verify your rent payments and in so doing, help build your credit history.
How will I benefit from including my rent payments for my credit score?
By creating a history of your rental payments, it will not only validate who you are and where you live, it will also prove that you are financially reliable. As a result it could make it quicker and easier to:
- Apply for a mortgage
- Get a loan application approved
- Get a credit card
- Open a bank account
On top of this, you might also receive better gas, electricity and phone rates.
But is it really worth setting up?
Yes! Credit scores are being taken into account more and more. Landlords often like to view a prospective tenant’s credit report before accepting them. A poor score might persuade the landlord to reject your application, so why not put yourself in the best possible position? Find out more about what credit score is needed to rent a property here.
On top of this, some employers also request a credit report before hiring, in particular if the role involves dealing with money.
Whomever would like to view your report, whether Barclaycards or Bob the private landlord, they always have to have your permission first. This will normally be tucked away in the Ts & Cs or the tenancy application.
What’s next?
You’re set up with The Rental Exchange and you’re paying your rent on time - hats off to you! As you’re in the admin mood...is there anything else you can do to boost your score?
- If you haven’t already, register to vote: this puts your name on the electoral roll and helps to verify your identity. In so doing, you’re seen as more ‘stable’ and the score goes up.
- Set up direct debits to keep on top of monthly phone and utility bills, and prevent late payments.
- Settle any outstanding payments and get your financial history back on track.
So there you have it, the ins and outs of your credit score, and how you can improve it. Whilst you’re here, we have a few other blogs you might be interested in:
What credit score is needed to rent a property
5 best apps for splitting rental bills 2021
If you want to learn more about Urban Jungles's policies:
Read more about our Contents insurance policy here.
Read more about our Buildings and Contents insurance policy here.
