More than four million people in the UK are private tenants in the rental sector.
With many spending over half their salary on rent, yet rental payments have not traditionally been included on credit reports. This has created real problems for those looking to access credit, including loans and mortgages.
Despite the fact that mortgage payments are often lower than rental payments, millions of people find themselves unable to get onto the property ladder because they are unable to prove that they would be able to meet the mortgage repayments.
In addition, they struggle to access other lines of credit, such as credit cards and personal loans, or they are offered higher interest rates to reflect the perceived risk.
This dilemma prompted a petition in 2017 requesting that rental payments be included in credit reports. This petition garnered over 150,000 signatures and was debated in Parliament.
Despite Parliament refusing to take action on this matter, there is good news for tenants.
Tenants Who Pay Rent On Time Are Set To Benefit
For the first time, rent payments will appear on the Experian credit reports of more than 1.2 million lessees, who have opted into The Rental Exchange scheme. This scheme was developed by Experian in conjunction with the Big Issue Invest, which is part of the Big Issue Group.
James Jones, head of consumer affairs at Experian, told Sky News: ‘This is an important step in getting tenants recognition for meeting what in many cases is their biggest financial commitment – monthly rent – on time.’
There are other issues associated with rental payments not being recorded. This includes people struggling to prove their identity, particularly for social housing tenants, who are more likely to have a limited credit history.
Jones continued his statement: ‘For social housing tenants particularly, this will mean more successful ID checks, allowing them to get better deals, helping them get mainstream credit, and moving them away from higher costs.’
Bad Debt No Longer Required To Get Good Debt
At present, the main way of improving a credit score is for people to take out a loan or credit card to prove that they can afford the repayments and are a good credit risk.
However, as John Montague, founder and Managing Director of the Big Issue Group told Sky News: ‘It strikes me as barmy that the only way we can improve our position for the day when we need to take out some debt, it to take out some debt.
‘We thought there must be a better way. What else can we do to improve people’s position in life, to show that they’re responsible people?’
Over 150 letting agents, local authorities and social housing providers have begun sharing information with The Rental Exchange, with private renters choosing to opt-in to the scheme through their letting agents or landlord, or choosing to self-report. For social housing tenants, it is currently an opt-out scheme.
It is estimated that, as a result of The Rental Exchange, around eighty percent of tenants will see an improvement in their credit score, making it easier for them to obtain credit at better rates, and to get onto the property ladder.