Making mortgage payments on time can help improve your credit rating. But not everyone can afford to take out a mortgage, or may simply prefer not to. The question is, why doesn’t renting, which also shows your ability to make regular payments, also boost your credit score?
Actually, there are organisations that can help with this. Companies like CreditLadder can ensure that your rent payments are recorded on your credit file, which can improve your credit rating! We’ve explored this in more detail below:
What is My Credit File?
You may be surprised to learn that you don’t just have one credit file. The main three credit reference agencies in the UK, Experian, Equifax and TransUnion, all hold a copy of your credit file, and the information on each may be slightly different. This is because not every company will report to all three credit reference agencies.
The information on your credit report, as the name suggests, includes details of your credit history. This could be things like personal loans, credit cards, mortgages, and car finance agreements. Generally, these records will go back six years, and will show any payments that were missed, made late, or paid on time.
Other details on your credit file include personal information, such as your full name, date of birth, and current address, as well as some regular payments. Your utility bills, for instance, will be recorded on your credit file.
If you want to see your credit file, you can contact any of the three UK credit reference agencies, and request a copy. This may come with a small fee.
How is My Credit Score Calculated?
Your credit score, just like your credit file, isn’t as simple as it sounds! You don’t just have one score, as different companies will calculate it depending on their individual criteria. But essentially, your credit score is a number that determines how likely you are to repay credit, based on your credit history.
Using information from your credit report, organisations will assign a number to your score, which will fall into one of several categories. These include very poor, poor, fair, good, and excellent. According to Experian, the UK average credit score comes under the ‘fair’ category.
How Can Renting Improve Your Credit Score?
As mentioned above, a mortgage is automatically included on your credit file, as it’s a type of loan. However, your water, gas and electric bills aren’t forms of credit, so why are they recorded on your credit file, but rental payments aren’t? Unfortunately, we don’t have the answer for this! What we do know is that your rent can be included on your credit report, just not automatically.
There are a few organisations that offer this service, such as Credit Builder and CreditLadder. The former is partnered with Experian, so should help build your credit rating on your Experian credit report, while the latter reports rent payments to Experian, Equifax and TransUnion. So whichever credit file is used to calculate your score, with CreditLadder, your rental payments will be included.
How Does CreditLadder Work?
You’ll first need to sign up with CreditLadder - according to their website, this should take less than five minutes. You’ll need to confirm your personal and tenancy details, and then connect with open banking. If you’re unfamiliar with open banking, this is where you connect your bank, but for read only access. Essentially, a company can see your transactions, but can’t access your bank account.
You can then simply pay your rent as normal, and CreditLadder will report it to the credit reference agencies. It should be noted that for the free service, you can choose for details of your rent payments to be sent to Experian, Equifax or TransUnion. If you want these details to be sent to all three, CreditLadder charges a fee of £5 or £8 a month, depending on whether you pay annually or monthly.
Other Ways to Boost Your Credit Rating
Alongside reporting regular repayments like your rent, there are a number of ways you can improve your credit score. Some are easier than others, and you won’t always see instant results! But if you start making these changes, over time, you’re bound to see an improvement to your credit score.
One simple way to boost your credit rating is to register on the electoral roll. As it’s essential that the information on your credit file is accurate, by confirming your address, you can actually improve your credit score.
Another tip is to pay off any old existing debt. Having too much credit out at once can mean your finances are a bit stretched, so lenders may not want to lend you more money.
If you are looking to take out credit, such as with a car finance agreement, it’s a good idea to see if you can increase your credit score first. That way, you may be offered better interest rates.