Experian, one of the UK’s major credit rating agencies, has announced changes to its scoring system that will now include rental payments in credit scores. The agency stated that this overhaul aims to better represent “more of the everyday financial behaviours that matter,” such as paying rent and managing overdraft use.
Under the new system, the maximum achievable credit score will increase from 999 to 1,250, and additional guidance will be provided to borrowers on how to enhance their creditworthiness. Credit scores serve as indicators of a borrower’s capacity to repay loans, and a low score may hinder access to mortgages, loans, or hire purchase agreements.
Experian has also updated the names of its credit scoring bands. The previous categories “poor” and “very poor” have been removed, along with the red color designation. The new categories will include Excellent, Very Good, Good, Fair, and Low. For customers in the Low band, specific recommendations will be provided for improving their scores.
This updated scoring system is set to be rolled out this month, with full availability anticipated by the end of the year, accessible through the free version of Experian’s service. Notably, tenants will need to opt-in for their rental payment history to be considered. According to a spokesperson from Experian, this change reflects the increasing importance lenders place on a positive rental history. However, it was emphasized that missed rent payments could adversely affect credit scores.
In addition to rental payments, the new system will assess factors such as reduced overdraft usage, avoiding credit card advances, and making mortgage overpayments. Other regular payment behaviors, including mobile phone contracts and customer-provider switching frequency, will also be evaluated.
Despite these changes, Experian has stated that the ability to obtain credit will not be impacted, though borrowers may experience shifts in their credit band standings. According to Experian, approximately 44% of customers may drop a score band, 42% might improve, and 14% are expected to remain in the same band. The UK has three credit rating agencies, and TransUnion and Equifax have yet to announce similar changes.
Source: https://www.bbc.com/news/articles/c8jrw8e1w0lo?at_medium=RSS&at_campaign=rss