Rental payments will be reflected in credit scores, one of the UK’s main credit agencies has said.
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”.
The new system will see the maximum credit score someone can have go from 999 to 1250, and will also give more guidance on how borrowers can improve their creditworthiness.
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.
The bands will now be named Excellent, Very Good, Good, Fair and Low.
For customers in the low band, instructions are given on how they can increase their score.
A spokesperson for Experian said tenants would have to opt in for their rent payments to count.
“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.
“Great news for renters who are paying on time, every month.
They added that missing rent payments would have an adverse affect on someone’s credit score.
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.
Other behaviours the new system is taking into account are cutting overdraft use, avoiding credit card advances and making mortgage overpayments.
It will also take a more detailed look at regular payments on mobile phone contracts and how often a customer may switch provider.
Experian stressed the changes would not impact on someone’s ability to get credit, while eligibility for mortgages, loans or credit cards remains unchanged.
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.
In the UK, there are three credit ratings agencies, the other two being TransUnion and Equifax – and Monday’s announcement makes no different to how they score credit.
The changes also mean that borrowers are likely to change the credit bands they are in.
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.