We know how difficult it can be to build your credit history if you’ve never borrowed before. Or you might have you’ve had problems with credit in the past and you just don’t know how you can turn it around again.
Paying your rent on time doesn’t usually improve your credit history, but a new scheme could change this. It’s called Rental Exchange and it lets the credit reference agency Experian track your rent payment record. Let’s find out how it works and what it could mean for your borrowing prospects in the future.
Improve your credit history
With Rental Exchange, you pay your rent through a company called Credit Ladder. Online estate agent MakeUrMove set up the scheme and it works in partnership with Experian to help your improve your credit history.
Credit Ladder will pay your rent to your landlord or lettings agency. It also tells Experian whether you’ve paid your rent on time or not. Experian will then update your credit record to show this.
This means that if you always pay your rent on time, you could start to build a positive credit history. So if you want to buy a home in the future, this could be easier with a good credit record – though it won’t help you raise your mortgage deposit!
Is there a catch?
This is all well and good if you always pay your rent on time, but if you pay your rent late through Credit Ladder, this could have the opposite effect you were hoping for. Instead, it could mean you have a poor credit history and this could make it harder to borrow in the future.
Rental Exchange won’t make a difference to your credit history yet – rental payments won’t show on your Experian credit report until the end of 2016. But that doesn’t mean it can’t still help with credit history. If you sign up with Credit Ladder now and make your rent payments on time, these months will show on your credit report when Experian starts to show the data.
It will also probably take a while before lenders start to look at rent payments when they ‘credit score’ you. This is how lenders decide whether they want to lend to you or not and what interest rate you can borrow at.
Experian isn’t the only credit reference agency, there’s also Equifax and CallCredit. If lenders look of your credit report through Equifax or CallCredit, your rent payments won’t make a difference. This is because they won’t show on these reports – it’s only Experian doing this for now.
There are a few other things you should look out for on your credit history if you want to borrow in the future – find out how your credit history could be holding you back.