Experian Integrates Rental Payments into Credit Scores for the First Time
Experian has announced significant changes to its credit scoring system by integrating rental payments into credit scores for the first time. This new approach aims to better reflect tenants’ payment histories and promote fairer lending practices.
New Scoring Bands and Their Implications
As part of the overhaul, Experian has restructured its scoring bands. The categories of “poor” and “very poor” have been removed, and the new bands now include:
- Excellent
- Very Good
- Good
- Fair
- Low
Instructions are provided for customers in the low band on how to improve their credit score. These modifications are designed to be user-friendly and accessible.
Rollout Timeline
The updated scoring system is set to begin its rollout this month, with all customers expected to gain access by the end of the year. Notably, the changes will be available on the free version of Experian’s service, allowing wider consumer access.
Requirements for Rent Payment Consideration
Experian has made it clear that tenants must opt in for their rent payments to be reflected in their credit scores. A spokesperson emphasized that this change aligns with the growing trend of lenders acknowledging positive rental histories. “Great news for renters who are paying on time, every month,” they noted.
Effects of Rent Payments on Credit Scores
The new scoring methodology is set to recognize various payment behaviors, including:
- Reducing overdraft usage
- Avoiding cash advances from credit cards
- Making mortgage overpayments
However, it is important to note that missed rental payments may negatively impact a person’s credit score.
Impact on Borrowers
Experian indicates that these changes could lead to shifts in credit band placements. Specifically, they project that:
- 44% of customers may drop down a score band
- 42% could move up a band
- 14% are likely to remain in the same band
Despite these shifts, eligibility for mortgages, loans, or credit cards remains unaffected. Experian stresses that the changes are aimed at creating a fairer credit system without hindering access to credit.
The UK Credit Rating Landscape
In the UK, Experian is one of three credit rating agencies, alongside TransUnion and Equifax. Currently, neither of the other two agencies has announced changes to their scoring systems.
The integration of rental payments into credit scores marks a notable advancement in how payment histories are evaluated, potentially benefiting many tenants in the process.
