How to use rental payments to build a credit score

Those who move to Britain or are yet to get on the property may not realise just how important credit scores can be.

Alexandra Cheung, a tech consultant who falls into both categories, has lived here for six years and applied for a credit card a year ago. But she was shocked when she was turned down for having a poor score – read her story below.

Now, a free tool that allows renters to use monthly payments to build a credit profile has joined forces with Britain’s biggest building society to help first-time buyers and those who have moved from overseas potentially find it easier to get onto the ladder.

The new relationship between Credit Ladder and Nationwide Building Society should allow buyers to access finance at a better rate and improve credit scores.

Since launch in 2016 Credit Ladder has reported over £50m in rental transactions to Experian Alexandra Cheung was rejected by a lender and had to start her credit history from scratch Sheraz Dar CEO of Credit Ladder says the company's relationship with mortgage lender Nationwide is the first of its kind Access to the rent reporting service is free but Credit Ladder is also offering two other plans where customers enjoy perks Access to the rent reporting service is free but Credit Ladder is also offering two other plans where customers enjoy perks

Access to the rent reporting service is free but Credit Ladder is also offering two other plans where customers enjoy perks

When asked what criteria the building society was are looking for Dar explains: ‘Rent payments typically take three months to show on the Experian statutory report – this is a key report that many businesses look at before making lending decisions.

‘Lending criteria for mortgages will typically look for a deposit and lenders will typically let you borrow a multiple of your income.

‘We can’t help with the deposit or how much you could borrow, but we can highlight tenants to Nationwide who have shown good rental behaviour and who we believe could qualify for a mortgage.’

A survey of Credit Ladder’s internal data showed that more than 20 per cent of existing tenants could have qualified for a mortgage. 

Dar says that this figure is likely to be higher if they were looking to buy with a partner.

One downside to the service is that only the customer paying the rent will benefit from credit improvements. 

Dar says: ‘Currently, credit improvements are for those who pay the rent. 

‘If you rent with someone and pay the rent from one account, you would need to have the rent payment coming from your own individual account to see improvements in your credit position.

‘If tenants on our platform are looking for a mortgage, but they are paying rent from a join account, we can still look to help them – they would simply need to get in touch with us.’

Dar admits that the service could also help first time buyers that aren’t employed on a full time basis get a mortgage as well. 

‘All tenants can improve their credit score by having their rent reported through Credit Ladder – whether they run their own business or work full or part time doesn’t matter.

‘As additional criteria applies for mortgages, their broader personal finances are more likely to impact their ability to get a mortgage as opposed to the type of role they have.’

Tenants are not required to bank with Nationwide in order to use CreditLadder’s service or be introduced for a mortgage. 

The rental credit platform currently supports Barclays, Co-Operative Bank, First Direct, Halifax, HSBC, Lloyds Bank, Monzo, Nationwide, Natwest, RBS, Santander, Starling and TSB.

Dar adds: ‘There is no requirement for participants to bank with the Nationwide. We can typically work with 95 per cent of bank accounts.

But Dar doesn’t rule out working with other banks in the future. ‘We are looking to extend this service out and work closely with a small number of banks that share our vision of helping tenants.’