Life after debt

Could your rent help your credit score?

Posted 09 April 2016

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Renting? Want to improve your credit score after your debt solution ends? Then Credit Ladder could be just what you need.

Are you rent a home and looking for ways to rebuild your credit score after your debt solution? Well, there’s good news. You may now be able to use your rent payments to rebuild your credit history and we’re going to tell you how. 

Debt solutions can be an effective way to deal with unmanageable debts. They can lower, or in some cases suspend, your payments on your unsecured debts and when completed successfully leave you in a much more secure financial place.

A debt solution will cause some damage to your score though, because you’ll stop paying the contractual amounts you agreed to originally. So, once you’ve completed your debt solution, it’s really important that you focus on rebuilding your credit score. Credit Ladder is a new company that aims to allow people to use their rent payments to do this, just like a homeowner would use their mortgage payments. 

You can use borrowing to improve your score after your solution, for instance by getting a credit card designed for people with poor credit. However, Credit Ladder could provide a simpler and less risky way to do that if you rent. Let’s look into that in a bit more detail. 

How does it work?     

Credit Ladder is a company that allows tenants to pay their rent through them – like a middle man – and they then pass it on to the Landlord, recording whether or not it was paid on time. Now if your debt solution has allowed you to get to a place where you’re always on time with your rent, it could be a good idea to use Credit Ladder so that you can build your score – in fact this is something that Experian (the credit reference agency) has urged people to do

If you want to sign up to Credit Ladder, you can do so for free on this page. You’ll need the details of your Landlord or agency and a few other details, like your bank account number. Then, you simply set up a standing order or create a direct bank transfer (they are the only ways to pay at the moment) for your rent to come out of your account and into Credit Ladder’s. 

Once Credit Ladder receives the payment, they’ll send it on to your Landlord or rental agency and report that your rent was paid on time and in full. This will also provide an online proof of identity – simply put it will prove you are who you say you are. 

As yet, you can only use Credit Ladder if you rent privately. If you are a social housing tenant, you would need to contact your Landlord and ask them to send a record of your rent payments to Experian on a regular basis. 

Why Experian? 

There are three main credit reference agencies in the UK, Experian, Callcredit and Equifax, so you might be wondering why Credit Ladder only report to one of them. This is because Experian is one of the first credit reference agencies offering tenants the chance to report rental payments though them. 

Experian have set up the Rental Exchange, which treats those who pay rent the same as home-owners who are paying a mortgage regularly so that, however you pay for the roof over your head, you get a fair chance to improve your credit score. 

Why you need a good credit score? 

It’s important for you to have a good credit score if you think you’re going to use any kind of credit in the future. Especially if you think you’re going to want to apply for a mortgage. Why? Because the people who you’ll be borrowing from, your creditors, will use your credit file, and their own criteria to decide whether they want to lend to you or not. 

Having a poor credit score doesn’t mean that you won’t be able to get credit. But it will mean that you may find it more difficult or, at the very least, more expensive than you would do if you had a good one. 

The potential downsides 

If you were to sign up to Credit Ladder, or your Landlord requested that you do so, then it’s worth remembering that your credit score will be damaged if you don’t pay your rent in full on time. This could make it more difficult, or more expensive, to borrow money in the future as lenders may see lending to you as something of a risk. 

Rent is classed as a priority payment, as if you don’t keep up with it, you could risk losing your home. This is why, if you’re struggling to keep up with all outgoings, rent is one of the payments you should put first – even before unsecured debts like credit cards and loans. 

We have a full list of which payments are classed as priority or non-priority - just have a look at our blog What are Priority and Non-priority debts. If you’re struggling to make ends meet and you need advice on debt solutions we are here to provide all the support you need. Use the options to the left and you can get free debt advice from trained professionals today.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.