Should Rental Payments Be Added to Tenants Credit Scores?
Currently, tenants’ rental payments are not marked in their credit reports. This is not great for landlords as timely rental payments on previous properties can provide an indication as to whether your tenant will be able to service your rental payments too.
It can take years to build up a decent credit report. Hence, many tenants that have rented for a long time may not have a good credit file especially if they have never taken out a loan or own any credit cards. Having rental payment history on credit reports can thus help those tenants that would otherwise struggle to get a mortgage to buy their first property.
Launched in 2016, the Rental Exchange Scheme was planned to help tenants to build up their credit scores voluntarily. the Rental Exchange Scheme was set up between Experian and Big Issue Invest, the social investment arm of The Big Issue Group to help allay the challenges faced by tenants.
Tenants pay their rent to a third party, Credit Ladder who will then pass on the payment to the landlord or lettings agent. They will then inform Experian if the rent has been paid on time and the tenants credit report will marked accordingly.
Rental exchange is a voluntary scheme and there is no cost to the landlord or the tenant. It helps both parties – the tenant will be encouraged to pay their rent on time. The tenant will gain online proof of identity and build a credit history that can be used gain access to mainstream credit. The landlord will gain the ability to make an accurate and informed decision when vetting prospective tenants. Current landlords using Rental Exchange will reduce the risk of their tenants paying their rent on time.
Setting up on Rental Exchange is fairly easy via one of many rent payment service providers, for example, Rentlord, CreditLadder, Canopy or CreditBuilder. Agents and landlords with a portfolio in excess of 100 properties can report rent payment directly into the Rental Exchange.
As a landlord, confirming the timely payment of rent by a prospective tenant could be a lifesaver. Over 5 million UK households currently rent and this figure is expected to rise. Gauging the suitability of a prospective tenant by way of confirmation of historical rental payments would be a welcome relief for landlords.
The government has not yet ruled on whether rental payments will be marked on credit files. However, it definitely makes sense and as a landlord is one to watch going forward.
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