Experian – the credit reference agency – is introducing a UK-first, by including rent payments as part of a tenant’s credit file.
In an effort to give landlords a more accurate picture of a prospective tenant, and tenants a greater chance of building a credit history, the “Rental Exchange” looks set to divide opinion.
While some have criticised the big brother nature of this additional check, many more are coming out in praise for what could be a very positive move for both landlords and tenants alike.
Experian will depend on landlord participation in the scheme, and this could prove a considerable challenge in the months ahead. It could be the case that two tenants living next door to one another could find themselves in the situation where one is building a credit history, whilst the other is not.
However, instead of looking at this glass half empty scenario this is an important step forward – no tenants currently gain any sort of credit history from diligently (or not) paying their rent. When they come to buy their first home, or take out credit, they can often find themselves disadvantaged as a consequence.
How Experian’s “Rental Exchange” will work…
The “Rental Exchange” will allow landlords/letting agents to check whether a tenant has made rent payments on time, or at all, when renting previous properties. Experian will charge the agent/landlord a small fee for this service.
If the tenant agrees to it, this data can also go onto their main credit file – which could strengthen their hand when trying to secure a mortgage, loan, credit card, or other finance.
Clearly this will benefit landlords, who will have a new and effective way to screen prospective tenants; and of course, tenants can build a credit history where, before, they built nothing.
The devil will be in the detail…
Whilst this scheme is undoubtedly a good thing, it will be interesting to see how it is used by landlords and lenders.
The extra fee that landlords or letting agents will have to pay might present problems too. Will the landlord or letting agent be charged if they do a search on a tenant who has a rental history, just not with any landlord that uses Experian’s scheme? The tenant will not appear – which doesn’t make them a bad renter – but it does mean an extra check, and expense, for nothing.
Some landlords and letting agents may use the check in place of, or in addition to the credit check. It’s very likely that this fee will be passed on to the tenant, making just another thing to pay, in the increasingly expensive business of securing a rental property.
And how much value a finance provider or mortgage lender will attribute to the payment of rent is as yet uncertain. Would it receive the same weighting as successful payment of a mortgage over a set term?
There are a lot of questions yet to be answered – and it will be interesting to see the extent to which Experian’s “Rental Exchange” fulfils it’s promise of enfranchising tenants, and helping landlords.