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Rental payments will be reflected in credit scores, one of the UK’s main credit ratings agencies has said. <\/p>\n
Experian said it was overhauling its scoring system to better reflect “more of the everyday financial behaviours that matter” which included things “like paying rent or reducing overdraft use”. <\/p>\n
The new system will see the maximum credit score someone can have go from 999 to 1,250, and will also give more guidance on how borrowers can improve their creditworthiness. <\/p>\n
Credit scores are used as a broad indicator of a borrower’s ability to pay back a loan. A low credit score can make it more difficult to take out a mortgage, get a loan, or enter into a hire purchase agreement on a car. <\/p>\n<\/div>\n
Names of Experian’s different scoring bands have also been overhauled, with the categories “poor” and “very poor” eliminated, as well as the use of the colour red. <\/p>\n
The bands will now be named Excellent, Very Good, Good, Fair and Low. <\/p>\n
For customers in the low band, instructions are given on how they can increase their score. <\/p>\n
The new scoring system will begin being rolled out this month, with a view to making it available to all customers by the end of the year, and will be available on the free version of Experian’s service. <\/p>\n
A spokesperson for Experian said tenants would have to opt in for their rent payments to count. <\/p>\n
“As with other data we’ll soon be including in the updated score, this reflects that more lenders are now factoring in a positive rent history in their decisions,” they said. <\/p>\n
“Great news for renters who are paying on time, every month.!<\/p>\n
They added that missing rent payments would have an adverse effect on someone’s credit score. <\/p>\n
Other behaviours the new system is taking into account are cutting overdraft use, avoiding credit card advances and making mortgage overpayments. <\/p>\n
It will also take a more detailed look at regular payments on mobile phone contracts and how often a customer may switch provider.<\/p>\n
Experian stressed the changes would not affect someone’s ability to get credit, while eligibility for mortgages, loans or credit cards remains unchanged.<\/p>\n
However, the changes mean that borrowers are likely to change the credit bands they are in. <\/p>\n
The new system means 44% of customers are likely to drop down a score banding after the changes, 42% are likely to move up a banding, while 14% will see their score band remain the same, Experian said.<\/p>\n
In the UK, there are three credit ratings agencies, the other two being TransUnion and Equifax – neither of whom have changed how they score credit. <\/p>\n<\/div>\n