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
First you have to sign up with Credit Ladder. They will confirm with your landlord that you are a tenant and the rent 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 that you have paid on time and 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
You have to give one months notice in writing. So it would seem that someone who knows they are going to be in financial difficulty – for example because they are being made redundant or are splitting up with a partner – can just end the reporting. So far as I can see the landlord doesn’t have to approve this – it would be a nightmare if they did.
What benefit do private landlords get?
Nothing at all.
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” – at the start of 2019 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. Only Experian will be recording this data.
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 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.
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 – 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. 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 sees this as a big problem so it has launched a consultation in February 2018 about introducing a single Housing Ombudsman, see Government moves towards a shake-up of broken housing complaints system.
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 not being taken into account by Experian;
- 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 January 2019