Could Credit Scores now Include Rental Payment History
Currently if a model tenant pays rent on time each month, their rental payment history does not count towards their credit score. However, with the introduction of the Creditworthiness Assessment Bill put forward by Lord Bird, founder of the Big Issue, this could all change.
The bill proposes conditions for lenders to take rental payments and council tax payments into account when assessing potential borrowers. Subsequently, it will be made easier for credit agencies to access tenants’ payment histories and include them in all-important credit scores.
One Labour MP Jonathan Reynolds, argued that up to 80% of tenants’ credit ratings would increase with the inclusion of rental payment history. There were fears that the bill would be held back by amendments, but these proved unfounded after the amendments were withdrawn. Industry experts also raised concerns surrounding difficulties of recording payment histories accurately when thousands of private landlords are involved, as opposed to a handful of major financial institutions and big retailers who provide the majority of credit in the UK.
Despite these concerns, the Creditworthiness Assessment Bill has passed two readings and the committee stage in the House of Lords already, making significant progress towards reaching debate in the Commons.
Lord Bird’s Bill has received cross-party, public and industry support from NALS. Speaking to peers earlier in May, Lord Bird said:
“If there are any unintended consequences then it is our duty to look at legislation and not simply write-off 80 per cent of people in order to protect 20 when the best thing you can do to protect them is to find out who they are, get very close to them and embrace them. Those are the people I know, the people I work with and the people I come from and there is absolutely no way I would ever come close to grassing them up.”
How could this benefit you as an agent?
Under this legislation, tenants will have even more of an incentive to pay their rent promptly. Those who apply for loans or save for mortgages will want the highest credit score possible and will therefore be even more motivated to pay their rent on time each month.
This will contribute towards reduced arrears, which means you’ll have to do less chasing and will benefit from increased cash flow, which as highlighted on the letting blog last week, is an increasing problem in the UK.
Furthermore, if a renter’s payment history becomes more accessible, it would support the tenant referencing process, allowing agents to gain a clearer picture for prospective clients.