UPDATE – September 2020 – now Credit Ladder are proposing to charge you £60 a year to report to both Experian and Equifax. I suggest you don’t bother! As a means of paying to try to improve your credit score this seems unnecessary, reporting to two is very little better than reporting to one.
Do yourself a favour and pay that £5 a month off a debt instead. Or add it to your savings account if you don’t have any debts.
Paying your mortgage on time helps your credit score. Shouldn’t paying your rent do the same? That is the idea behind Credit Ladder, where tenants renting from a private landlord can sign up to have their rent payments reported to Experian.
But there are reasons why this may not be such a good idea for the tenant. This article looks at Credit Ladder in particular, read Should paying rent help you get a mortgage? for the more general case which also looks at house prices and mortgage affordability criteria.
How it works
You have to sign up with Credit Ladder. They will confirm with your landlord that you are a tenant and the rent that is payable.
You authorise Credit Ladder to access your bank account so it can see that you pay your rent each month (this is much better than the alternative where you can pay your rent to Credit Ladder and Credit Ladder pays your landlord or lettings agency the same day).
Then Credit Ladder tells Experian and/or Equifax you have paid on time and they update your credit record saying that you have paid this month on time.
If you are house sharing, you sign up as an individual – not everyone in the house has to sign up. Your credit record won’t be affected if one of your flat-sharers doesn’t pay their rent on time.
NB This doesn’t affect your legal liability. Tenancies are usually on a “joint and several liability” basis so if one of the others doesn’t pay, the rest of you are liable for the whole amount.
How to cancel it
This described here.
What benefit do private landlords get?
Nothing at all.
What benefit will tenants get?
Experian and/or Equifax will be updating your credit record with this information. Lenders will be able to see your rental payment history and you can also see it on reports from that credit reference agency.
No date has been set for when Experian will start to use the information in its calculations of your “credit score” – at the start of 2020 this was still not happening.
It’s important to remember that there is no such thing as your correct credit score – the three different credit reference agencies each calculate a number and lenders will do the same.
Some lenders may choose to take account of these rental payments in assessing your credit history. Others may not. It’s not clear how important a lender will think these rental payments are.
For someone with almost nothing on their credit file, it will help with proof of identity. But most people getting a private tenancy won’t need this as they will already have been credit checked. And things like water bills will also be added to their credit records.
This Credit Ladder Facebook ad implies that using Credit Ladder will help when you apply for a mortgage. Really? Mortgage lenders are interested in the mortgage affordability calculations and how well you have managed credit in the past. Your rental payments may not be a positive help with either of those.
If a tenant can just stop the reporting as soon as they are in trouble, this significantly devalues the usefulness of the information to creditors. But late payments or defaults could harm your chance of getting credit.
That is the problem with choosing to have these details on your credit record. Bad marks could really harm you and it’s not clear how much help positive ones will be.
What if things go wrong?
Credit Ladder/Experian/Equifax will be applying the usual ICO guidelines that apply to debts. A late payment marker will be added if your rent is paid late. The account will be marked as defaulted when it is three months in arrears.
There will also be problems with Housing Benefit where payments may be missed initially but then later back-dated.
With Universal Credit, Credit Ladder say:
During the transition from Housing Benefit to Univeral Credit, whilst applications are being processed, we will flag monthly payments as being ‘Unclassified’, this means no comment can be made on your payment performance. This effectively protects consumers from being negatively affected during the changeover. Only once you are in receipt of Univeral Credit and this payment is being paid on a regular and reliable basis by the Department of Work and Pensions (DWP) then would it be appropriate for the rental payment contributions to be recorded by CreditLadder.
That sounds complicated. And it doesn’t sound as though it will cope with the problems that people on UC routinely get with their payments if their income is erratic or isn’t paid monthly.
If your rental amount changes (eg your landlord agrees to take less one month so you can sort out a repair themselves) or ends, you can email Credit Ladder who will then ask the landlord for written confirmation. If the landlord doesn’t agree, I think you will get a bad mark on your credit record.
Resolving problems
With co-operation from the landlord, any problems can no doubt be sorted. But what about landlords that can’t be bothered, after all they aren’t getting any benefit from this?
I can’t see that there is any incentive – carrot or stick – for the landlord to reply promptly, or indeed at all, to communications from Credit Ladder.
Other companies that add data to your credit records are all regulated in some form or another. Loans and credit cards come under the FCA and you can go to the Financial Ombudsman if there are problems. Water bills, electricity/gas, telecoms etc all have regulators and an Ombudsman process.
Local Government and Housing Association tenants can take problems to the Housing Ombudsman. But that scheme is optional for private landlords and very few are members of it.
As a Citizens Advice advisor in London, I see some private tenants struggling with incompetent/vanishing/amateur/absentee/Dickensian letting agents and landlords. Some of them pay no attention to a tenant’s legal rights to privacy, security of tenure and repairs. It isn’t always easy to tell at the start of a tenancy whether there will be problems a few months later.
The government launched a consultation in February 2018 about introducing a single Housing Ombudsman. But two years later, nothing has happened. nothing happened.
So is Credit Ladder a good idea?
I think it is a risky decision to sign up to Credit Ladder:
- your credit score won’t benefit at all at the moment as rental payments are being reported but not used in credit score calculations by Experian or Equifax;
- creditors, especially mortgage lenders, may not give making rental payments on time much, or any, weight;
- any bad marks will significantly damage your chance of getting credit;
- there is no incentive for landlords to co-operate in resolving any issues;
- there is no Ombudsman or compensation scheme there as a back-stop if anything goes wrong.
Updated September 2020
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JoeEasedale says
I just don’t see this helping. The reason a mortgage payer scores higher than a tenant is that at the end of the day a tenant can skip the home in order to escape creditors, faster, easier and with less to lose than an owner can. In addition, in collecting on a CCJ after getting a high court writ, there is often less to go for , for a creditor, whilst the threat of bankruptcy can work wonders in a collection situation where there are assets to grab. A charging order can secure a debt very well, – not available with a tenant debtor.
So a home owner is worth more points any which way you look at it.
No credit score of course deals with repayability re an application, that is and should remain a separate issue.
Sara (Debt Camel) says
Good points, Joe – so it’s not making the mortgage payments that helps your credit score so much as the fact you have a mortgage shows that you own a house.
JoeEasedale says
Essentially yes Sarah. to get the points available on the credit score. However, further along in the credit score checking progress, will come the question to the operator who is checking the application, ” is there any adverse credit history?” So late, or missed payments, defaults etc will show up at that point and will likely cause a decline then.
Having slept on the question, I also wonder what position the renter would be in if they paid their rent over to a “credit ladder type” company which went bust before it had paid the money over to the landlords. Would the credit ladder company be protected by the FSCS guarantee I wonder?
Sara (Debt Camel) says
Credit Ladder has no regulatory authorisation, it will definitely not be covered by the FSCS guarantee scheme.
I’ve added a section on “How safe is Credit Ladder” to the article.
Sarah Ramage says
This is really helpful and useful information, thank you! I have spoken to my landlord about this and he is totally fine about me signing up to this – let’s face it, it means he can be even more sure my rent will be paid on time. Great for landlord, reassuring for tenant.
I am new to all this so forgive my ignorance.
But my question, to which I can’t seem to find the answer despite my research, is what’s in it for Credit Ladder? There’s no such thing as an altruistic company so how are Credit Ladder making their money? Call me a cynic but…. c’mon!
Any self-respecting bank account holder is not going to transfer money into a third party account weeks before that payment needs to be made so that (for example) Credit Ladder benefit from any potential interest on that monthly amount.
If I use Credit Ladder I am assuming my rent money goes in that day and out that day….. how does this generate enough interest for Credit Ladder to be a viable company and going concern? Are they relying on the assumption that people will default on rent payments?
Sara (Debt Camel) says
Despite the Credit Ladder advertising showing gifs of people happy to have got their car finance. or whatever, because credit ladder has boosted their credit score, rental information is still not showing on credit reports or being used in credit score.
If you want to actually help your credit score there are many better ways of doing it that actually work!
Even when Experian does take account of the CL data, it’s not clear how much weight it will have. It could turn out to be much like utility information – it harms your credit score if you have problems but doesn’t improve it if you don’t. Lenders like to see that you are good at handling credit – a record of paying your rent on time says nothing about this at all.
But to answer your question, no CL are not hoping to make money from the short period of time they hold your money. And if you default, that won’t get them any money. They are hoping some people will sign up to their paid for services (£5 a month and £9 a month add up!) They may also be hoping to find ways to sell their data at some point.
Sarah says
I’d always be skeptical of any of these things that say they let you “boost your credit score with [thing that normally doesn’t affect your credit score]”. If it seems too good to be true, that’s because it is!
Kevin says
Hi, I have read all the above with interest as I use credit ladder in the hope that it would help improve my credit score, attached to rent paid via my bank from 2019, however, has anything changed? to date Jan 2021? does anyone have an update on reporting to credit ref agencies?
Thank you
KC
Sara (Debt Camel) says
So rent is now reported on some credit records. But so far as I know it is not used in the calculation of your credit score. Lenders do not use the credit score you can see, they use different calculations. A lender can choose to include Credit Ladder if they want. I am not aware of any that are doing this.
Is your credit score poor because you have missed payments and defaults? Or because you are using a very high amount of your credit card limit? Or because you have little on it?
Kevin Clark says
Thank you very much for your comments, I believe my credit score is low as I do not have any credit..no credit cards or mortgage.
I do not want a credit or store card or a loan or any sorts, however, it would appear that to obtain credit, you need credit? and the credit reference agencies seem to push sales of all credit.
I have moved many times in the past 10 years which also seems to be a negative factor, but always pay my rent on time along with all my utility bills but all this does not count for anything. I am not seeking to utilise my surplus income into paying off debt.
I would simply like my credit score to be higher to reflect my current position.
Also I disagree with having to pay, and will not pay a fee to obtain a full copy of what credit reference agencies hold on me. I have however just applied for a free Experian report to see if credit ladder does infact show up on it as they insist does.
Thank you once again for any further comments.
Kevin.
Sara (Debt Camel) says
As you have surplus income there is a straightforward option for you that does not involve credit or paying interest – set up a regular monthly saving scheme with LOQBOX. See https://www.loqbox.com/en_gb/.
LOQBOX sets up your monthly savings as repayments to a one year loan. At the end of the year your credit record shows a loan repaid on time. This will help your credit score from about month 4 or 5. You get your monthly repayments back in full at the end of the year. And if you can’t afford the savings one month you can cancel the agreement and get back what you have paid so far – but this won’t help your credit record much.
The credit Ladder will appear on your credit reports. Experian are not lying about that. But it won’t change the credit score calulation. So try LOQBOX instead.
Kevin Clark says
Ok, Sara, I will check that out, and thank you very much. I appreciate your advice.
Kevin.
Vee says
Thanks so much Sara. I’ve been a fan of your blog for a while and am grateful to find this as I couldn’t find any evidence of credit scores improving through the use of Credit Ladder or similar services. I’m actually quite shocked that they can get away with advertising a service that seems to be pretty much useless!?
Lc says
Hi, I have credit ladder and it charges £8pm. I’m wanting to cancel it to save that £8pm. If I cancel credit ladder will it impact my credit rating or will it just close and be settled? If there’ll be negative impact then I’ll keep it otherwise I’d prefer to get rid.
Thanks
Sara (Debt Camel) says
I think you can revert to a free plan where it only appears on one credit reference agency.
So far as I know, the credit ladder records appear on your credit reports but aren’t actually used in calculating your score.
Even if they do affect the score you see, lenders do not use those scores, they calculate their own.
Paying £96 a year for this sounds like a lot to me!