In order to successfully apply for a loan or rent something, you will have to rely on the quality of your credit score. And in order to get a good credit rating, you’d have to perform some notable credit-related acts or meet some conditions.
And therein lies the problem: how are you supposed to avail of basic financial products if you have just barely begun on your credit activities? For first-time borrowers and young people, the act of building up credit in order to qualify for more competitive mortgage rates can be a challenge in itself.
Out of this problem, a noble concept was formed: what if rent payments were included in your credit score? Historically rental payments have not been included. This is what CreditLadder offers to tenants and it might just hold some promise those wanting to improve their credit score.
The most basic explanation as to what CreditLadder is is a service to tenants by notifying credit agencies that this person has made a payment, normally a sizable amount of their salary. It primarily works with Experian, one of the UK’s leading credit reference agencies and Equifax.
So what makes it different from the other credit reporting services, then? CreditLadder offers services that are actually geared to first-time tenants or those that have below than average credit scores.
Their primary focus is on mortgage or, to be specific about it, the act of qualifying for one. They do this by adding your rent payments in their report to Experian.
How does this work, you ask?
If you sign up to the service, you are giving CreditLadder permission to go through your files as well as your personal information to get data on whatever rental payments you have made. In essence, the service looks for information on the property you live in, your landlord, and the bank you are using to make your payments through.
Once the service has gotten hold of this information, they will then send it to Experian and/or Equifax. You will know that such information was added to your credit history if it pops up in the details of your next credit report. When you open your Experian report you will see something along the lines of this.
So, why focus considerably on your rent payments? The simple answer is this: propriety, plus its never been done.
When it comes to all expenses that any tenant tends to have, Rent could sit at the top of any list. After all, you could hold off paying on large expenses as much as you want. But to miss out on payments for the very place that you have to live and sleep in? Anybody would make sure that that obligation gets paid as soon as possible.
In essence, when compared to expenses like a loan on a vehicle or installments on a home entertainment system, paying rent seems to be most likely to get paid more frequently. As such, CreditLadder just wants to make sure that these payments become more visible as it might just help you be seen more of a trustworthy person to lenders. At least, that’s the theory.
Since this service looks at all the transactions you have made with another person, does this mean that you have to ask permission from your landlord before enrolling in the service? The answer is, fortunately, a no.
Your landlord’s permission is not necessary in order to qualify for the CreditLadder service. However, they are going to be contacted by the company when it does its investigating. The reason for this is that they want to verify if you are actually living in the property that you have provided for in your information. And who better to help them verify that than your landlord?
Also, the service will look at the general and specific terms of your tenancy agreement with the landlord. The landlord can then confirm this to establish just exactly what kind of relationship you have with them and other agreements you might have signed up for with them.
But, more often than not, CreditLadder will contact your landlord as a mere formality.
And now we come to the more important part. So, does CreditLadder’s adding of your rent payments actually work in improving your credit score? The answer is technically a yes.
What that means is that CreditLadder does uphold its end of the bargain and actually include your monthly rental payments to your Experian and/or Equifax credit report. However, there is actually no assurance that such will improve your score.
What you have to remember is that there are other factors to consider in formulating your credit score. For instance, if you have been making consistent monthly payments but you have outstanding debts and have even defaulted in some of them, the latter’s effects would overwhelm the former. In short, no matter how good your rental payments are, if you are doing poorly in other obligations, you are still going to end up with a poor credit score.
However, it does provide new entries to your credit report which will give creditors the impression that you are someone that is reliable enough to pay your obligations constantly. That should start in you building a good credit history which should make you more qualified for better mortgage deals later on.
The worst case scenario with CreditLadder is the inclusion of your monthly rentals does not result in much difference in your credit score. Aside from that, there is no other risk from using the service.
Is Credit Ladder a legitimate service? Fortunately, the answer to that question is also yes. CreditLadder currently enjoys affiliation with a number of Nationwide credit organisations. This would include the aforementioned Experian credit referencing agency and more recently Equifax but CreditLadder has also been working with banks like Barclays, Natwest, and HSBC.
As for credibility, the service is duly authorized by the Financial Conduct Authority and the HM Treasury. It also currently sports a membership including tenants by the tens of thousands.
The point is that Credit Ladder is legitimate since there are organizations backing it up and there are quite a lot of regular folk that have used their services since the company was formed.
The most direct benefit to get from the service is that the inclusion of your rental payments will be immediately seen in your next credit report. This means that anybody who does a hard search on your information can instantly see that you have been paying rent constantly. Since if renting you are already making rental payments its make sense for those payments to be recognised.
And aside from that, there are no other benefits to be had from this service. As yet Experian and Equifax has yet to factor in rental payments in computing your credit score. And as for the other CRAs like TransUnion and Equifax, they won’t be including such and they have yet to form an agreement of sorts with Credit Ladder.
But with that being said, the inclusion of the rentals will still work on your favour. Just keep in mind that it is not mandatory for a creditor to make their decision based on what your credit report is telling them. So, if you got a poor score but the creditor can see that you are consistent with your monthly rental payments, they might just approve of your loan. The operative word here is “might”.
Experian have been the most innovative in helping tenants in the UK. As far back as 2018 they have been working with Big Issue Invest to create The Rental Exchange. This makes it easier for housing associations, tenants to have their payment history as inclusive on credit reports as mortgage holders.
Credit Ladder’s services is completely free of charge if you wanted them to submit your rental payment to one agency. However, there is a two-prong premium option by way of CreditLadder Annual or CreditLadder Monthly.
It’s the same premium service mainly that they submit to two reporting agencies. If you opt for Monthly the cost is £8 a month. However, if you opt for the Annual service, you will receive a discounted rate by paying £60 upfront for the year, making it the equivalent of £5 a month.
No doubt a £5 or £8 monthly service is not a huge revenue earner for a company so beware of the golden loan, credit cards and mortgages products that might now be ‘recommended’ to you. Most times the site earns a commission for simply pointing people to get a new mortgage, loan or credit as these are all profitable items for the finance industry.
But if you are not that too excited about additional perks, then the base service will be fine. However, just keep in mind that there have been recent talks about Credit Ladder intending to charge £60 per month for their basic services. This has not yet materialized as a feature but just be aware that Credit Ladder might just remove themselves from the completely free route within 2021 or the nearest foreseeable future.
What were to happen in the event that Credit Ladder does not accurately report your monthly rental payments. Say, for example, that you have made consistent on-time rental payments but CreditLadder erroneously marked these as missed payments.
If that were to happen, then you can still contest the entry directly at CreditLadder. They will then conduct an investigation to determine how truthful the entry is (or not). They would also contact your landlord to confirm the actual state of the payment. If it was indeed discovered that they have made a mistake, then CreditLadder would amend their report to Experian. You should see such amendments made within the next credit report you request. How this would affect your score will depend on the other data found in your report.
So, is Credit Ladder a viable service that you should sign up for? The answer is a yes. The service is relatively young launching in 2016 but the company is steadily growing in the UK.
Sure, there are some problems like the bare-bones benefits and the lack of actual oversight on the treatment of your rental data but the service has been consistent in adding rental payments to the reports of their subscribers.
So, if you have a relatively new credit history or just want to build on your credit score with good and consistent payment data here and there, then Credit Ladder should be a necessity for you. But if your credit score is already of a considerable high quality, then there is not much that this service can offer to you that you are already enjoying yourself.