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.
There aren’t any figures published yet on take up, but Credit Ladder’s director, Asa Bentley said: The reaction to our service has been beyond our expectations with the number of renters signing up to the scheme 50% up on our pre-launch forecasts.
So it seems to be proving popular. But there are reasons why this may not be such a good idea for the tenant.
How it works
First you have to sign up with Credit Ladder. They will confirm with your landlord that you are a tenant and the rent payable. Then each month:
- you pay your rent to Credit Ladder;
- Credit Ladder pays your landlord or lettings agency the same day;
- Credit Ladder tells Experian that you have paid on time
- Experian updates your credit file 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
The T&Cs say that either party has to gave 31 days notice of cancellation. The T&C’s don’t define who a “party” is here – I think it’s just Credit Ladder and the tenant. I don’t think a landlord is party to the agreement because the T&Cs say “Credit Ladder may not notify Landlords when a notice of cancellation is received from the tenant”.
So it would seem that someone who knows they are going to be in financial difficulty – for example because they are being made redundant – can just end the reporting.
What benefit do private landlords get?
Nothing directly. It is suggested that having rent showing on a credit file will make a tenant more likely to pay their rent on time. But in my experience most private tenants do prioritise rent payments.
What benefit will tenants get?
Experian 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 Experian. No date has been set for when Experian will start to use the information in its calculations of your “credit score”. 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.
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. They will already have been credit checked. And things like water bills will also be added to their credit records.
This 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 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, the system is designed to have a delay then backdating. Credit Ladder have told me: We will obtain the proof of a payment schedule showing irregular payment dates or alternatively a payment delay confirmation in writing from the tenant. This would typically take the form of a letter from the council. We will then update the tenants records accordingly to ensure that no unnecessary late payments are recorded and hold a copy of the letter on file. That sounds as though it could be complicated.
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.
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 promtly, 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 a members of it – check if your landlord is.
As a CAB advisor in London, I see some private tenants struggling with incompetent / vanishing / amateur / absentee / Dickensian letting agents and landlords. And 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.
How safe is Credit Ladder?
What happens if Credit Ladder doesn’t pay your landlord and then goes bust? Credit Agent has not been appointed as your landlord’s agent – your landlord is still going to expect you to pay the rent.
When things are working properly, this risk should obviously be small as your money should be paid out the same day it arrives. But with a start-up company, and one that doesn’t seem to have any source of income at the moment as Credit Ladder aren’t charging anyone for this service, this does matter.
Your money won’t be covered by the FSCS compensation scheme. That only applies to financial services firms that are authorised by the FCA.
The T&Cs say “Any dispute under this agreement shall be referred to and decided by the Mediator… appointed by application to Ombudsman for Estate Agents.” That is a rather odd clause as there is no such body as Ombudsman for Estate Agents. There are three Ombudsman schemes that cover this area: The Property Ombudsman, Ombudsman Services and Property Redress Scheme. So far as I can see, Credit Ladder doesn’t belong to any of them, so none of them would consider a complaint from you.
Even if Credit Ladder was a member of one of these schemes, they do not have any compensation fund if a member goes into liquidation losing client money. As The Property Ombudsman says, “If an agent has ceased trading, it is unlikely that this office will be able to obtain the documentation necessary to review your complaint. If we do and an award is made by the Ombudsman, it will not be possible to pursue payment of that award through TPO’s usual procedures. TPO would not be in a position to enforce payment.”
So is Credit Ladder a good idea?
I think it is a risky decision to sign up to Credit Ladder:
- it’s not clear how much your credit score will benefit;
- mortgage lenders may not give making rental payments on time much, or any, weight;
- any bad marks could 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.