FTSE 100 giant Experian has announced plans to include rental payments in a major revamp of the formation of credit scores.
The agency 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”.
It follows a warning by The Financial Freedom for Everyone campaign, arguing that millions of renters were being locked out of home ownership due to rent payments being excluded from credit ratings.
The group had warned that the system unfairly penalises renters, holding them back from accessing financial opportunities, including home ownership, due to rent not being automatically recognised as a credit score component in the UK.
Mortgage payments, meanwhile, are routinely added to credit scores.
A spokesperson for Experian told the BBC that its decision “reflects that more lenders are now factoring in a positive rent history in their decisions”.
“Great news for renters who are paying on time, every month.”
Sam Carling, MP for North West Cambridgeshire, has said that including rent payments in credit scores was a “simple common-sense change that would make a real difference”, in particular in helping first time buyers take their “first step onto the property ladder”.
Credit ratings overhauled
Including rent payments in Brits’ credit scores is just one of many reforms being undertaken by Experian.
The new system will also take overdraft use, credit card advances and mortgage overpayments into account.
It will also take a more detailed look at regular payments on mobile phone contracts and how often a customer may switch provider, although it said this wouldn’t affect someone’s ability to get credit.
Just under half – 44 per cent cent – of customers are likely to drop down a score band after the changes, Experian said, while 42 per cent are likely to move up a band.
The UK’s two other main credit ratings agencies, TransUnion and Equifax, have not yet changed their scoring system.