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Credit Score When Renting: Importance of a Good One

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Tenants across the country are spending millions of pounds in the rental sector each week. 

Yet their return is yielding little more than home comforts. While some might argue that money exchanged for a roof over their head is indeed the whole point, others would say they should be rewarded further.

A person’s creditworthiness plays a vital role in purchasing bricks and mortar. And tenants are slowly waking up to the importance of a credit score when renting.

But, just how essential is your credit score when renting, and how does it affect a renter’s long and short-term future?

What is a credit score?

Principally, a credit score is used by lenders to decide how much money a person is eligible to borrow. They draw the information from a credit report, which provides them with an overall score. The higher the score, the lower the risk from the lender’s perspective.

Credit scores don’t tell lenders how much money you earn. Instead, they look at aspects such as your credit/debt ratio, payment history, and public records – electoral roll, how long you’ve lived at an address, and if you have any County Court Judgments (CCJs).

They also look at how many companies have performed a credit check on you.

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How do I keep a good credit score?

Credit score data comes from a few select companies, such as Experian. However, there are plenty of credit reference agencies that provide free scoring reports using the data of the larger providers.

There are also paid options that provide more in-depth reports. But a free report should be enough to give you a clear idea of your score.

Making credit payments on time helps to boost your credit score. So too does having a healthy amount of credit available in comparison to debt you might owe. It’s also crucial that you don’t miss any payments due on any credit cards and loans that you may have. Doing so can be a big issue – as it will see your score decrease. Registering for the electoral roll factors into your credit score.

The role of creditworthiness in renting

Once upon a time, there were far more homeowners than renters in the UK. That gap is closing, however. As of 2018, 20% of households in the UK were renting privately, while 28% own a home with a mortgage.

Those with desires of getting on the property ladder could do with some extra help achieving their goal – in whatever capacity it may come. Ideally, tenants who want to buy their own home with a mortgage need a good credit score –  and companies like Credit Ladder can help them report their rent payments.

The result sees rental payments count towards your overall score. This potentially means higher credit scores for tenants, who can then be more confident about securing a mortgage.

Companies such as Credit Ladder are becoming a more common theme, and are backed by Financial Conduct Authority, HM Treasury and Experian. While tenants still need to navigate the tricky proposal of getting a deposit together, it’s good to know that monthly rental payments will take on more importance.

Rent Recognition Challenge

Renting with bad credit is tricky – but things are changing.

Credit Ladder is one of the three start-ups who are part of the Rental Recognition Challenge, which is backed by the government.

The Rental Recognition Challenge tasked entrepreneurs to come up with a simple way for renters to record and share their rent payment data. Bud and RentalStep join Credit Ladder as the two other companies that are involved with the scheme.

John Glen, who is Economic Secretary to the Treasury, said: “Monthly rent is often the biggest expense that people face. Yet most lenders are unable to take it into account when working up a credit score.

“Three pioneering start-ups have found a solution, and we’re giving them the investment and support they need to help millions of renters across the country achieve their dream of owning a home.

A continued government presence

The Rent Recognition Challenge isn’t the only thing happening in government.  Led by John Bird, the Creditworthiness Assessment Bill has its third hearing in 2018, as it looks set to become part of government legislation.

The Creditworthiness Assessment Bill will see rental payments become a mandatory part of all credit scoring. The aim is to provide fairer access to more affordable credit, especially for those living in poverty.

Currently, rental payments for more than 11 million renters aren’t recorded in the same way as mortgage payments. However, the Rent Recognition Challenge and the Creditworthiness Assessment Bill are set to change things dramatically.

The future should see tenants all over the UK enjoy improved credit scores and a greater chance of getting approved for a mortgage when they decide to hop onto the property ladder.

Find more advice on renting, from tenancy applications through to knowing what to do at the end of your tenancy, all in one place below.

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Check your credit score

Renting a property? Want to check your credit history and credit ratings? We can help you there. This tool is completely free and easy to use. Find the Experian credit score checker here. 

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Last Updated: January 3rd, 2024