Experian to include rent on credit reports
Credit agency Experian is to start showing rental payment history on credit reports. But is this a good thing? And who benefits?
Experian, one of the UK's three main credit reference agencies, has created a new product that shows how clean your rental payment history is.
On launching the product, Experian declared straight away that its purpose is to help tenants. So we can be pretty confident that's not the real reason.
In fact, as you'd expect, this is clearly designed to help the people for whom the service has been made: the landlords. Landlords will be better able to see if future tenants are good at paying the bills. Since it is designed for landlords, it is they who are being asked to pay to use the service, which they will do when they check up on new tenants.
Tenants will likely have varying opinions on the new Rental Exchange depending on their philosophies about sharing personal data, on their experiences with incorrect information on their credit files, and on their financial position.
More of our data being logged
With this new scheme, more personal data will be stored and used. Many consumers have serious concerns about their personal information being kept by all and sundry, and it is far from unheard of for credit reports to contain errors that can affect their credit ratings – and now their chances of getting a new home.
There will be safeguards in place if there's a mistake with housing benefit which isn't your fault. However, over the years I've read a good number of horror stories about the difficulties that can arise in getting errors properly rectified to prevent unfair credit rejections. These difficulties have always been denied by the credit reference agencies.
We'll get used to it
I expect that many tenants will grumble about the new checks, rather like when restaurants started to add a 12.5% tip to our bills. It's taking years, but in many cities diners are slowly beginning to get used to the extra cost. It might just be that sharing your rental details with credit reference agencies, banks, landlords, and the rest will become a fact of life, too.
Your rental history might start being logged the next time you sign a tenancy agreement, because it may include a clause granting the landlord permission to check your rental history, and to start logging it with Experian.
You could avoid this
Landlords might take up this scheme slowly, especially those with just a property or two, and you might not need to sign a new tenancy agreement for years in any case.
If you have objections to more data being kept on file, or are worried about errors, you could negotiate to have the clause removed from your contract by writing a short, polite email or letter to the agent or landlord explaining your reservations and why the clause needs to be removed.
Once a landlord or estate agent has decided they want you to be the tenant, they're not likely to back out if you take the initiative to negotiate terms in your contract, and the worst that should happen is they say No to the changes. (I have negotiated terms successfully myself on a number of occasions. Read more about negotiating your tenancy agreements in Dealing with estate agents and How to haggle.)
You might be particularly keen on having the clause removed if you are going to have a joint tenancy agreement. After all, if your flatmate defaults and you can't make up the difference, that would show on your credit report too.
Even better in the case of joint tenancies, you could try to negotiate separate contracts so that you're not liable if a flatmate defaults, although I suspect most landlords will reject such a demand.
The potential benefits for tenants
Before removing the Experian clause from your agreement, you should consider that it might actually improve your credit rating.
Although lenders will decide for themselves how it will affect their decisions, I expect that a record of a good rental payment history will nudge you up the list of borrowers and even perhaps help you to get cheaper mortgages or loans. Since the majority of tenants don't default, the difference for many tenants could be small, however.
If you don't have any debt, this could be a good way to start building a credit record – if lenders decide the information helps them choose better borrowers.
Even if you don't intend to borrow for many years, it can be worth building a decent credit record so that you're able to get one of the best cashback credit cards. These effectively pay you to do your regular shopping, and you can pay nothing in fees or interest so long as you pay off the card bill within a month. It's free money.
The flipside is that rent defaults will show up on your record. If you're struggling to stay above water and can no longer pay all your bills and debt repayments, rent is a priority bill because you could be evicted if you don't pay. To learn about your other priority bills read The secret to getting your priorities right.
If you've signed a tenancy agreement allowing your details to be logged by Rental Exchange, paying your rent on time will now be even more important.