Experian has announced that rental payments will soon be included in its credit score calculations. This is part of a major overhaul to its metrics to add more detail to credit reports and better incorporate how lenders actually assess applications. Crucially, this feature will be "opt-in," meaning tenants must actively choose to share this data to have it included. The new system will be steadily rolled out this month, with the aim to include all users by the end of the year.
A key initial consequence of the change will be that 44% of people will drop down a score band and 42% move up a band. However, a drop or rise in score will not necessarily affect how likely someone is to get credit, as lenders will look at the underlying details of an applicant.
Edu Castro, managing director of Experian consumer services in the UK and Ireland, said: "Our new Experian credit score better reflects more of the everyday financial behaviours that matter – like paying rent or reducing overdraft use – offering a clearer understanding of the information on your credit report.
"This means people get a more personalised view of how they’re doing financially and more practical ways to improve their score, helping unlock better borrowing opportunities for the future."
What is a credit score?
A credit score is a numerical rating of your creditworthiness, essentially a judgment from a Credit Reference Agency (CRA) on how likely you are to repay a debt. The higher your number, the more likely you are to get the loan, mortgage or credit card you are applying for, because it suggests you are a more reliable borrower.
The three main CRAs in the UK are Experian, Equifax and TransUnion. Each is likely to hold slightly different information about you and has their own unique metrics for coming up with a final score. This means that you don’t have just one credit score.
How is Experian changing the way it calculates credit scores?
The changes from Experian mean that new data, including rental payments, will be incorporated into its calculations. It will also take into account certain financial behaviours that lenders tend to value or penalise. This will include how someone uses their overdraft, whether they overpay their mortgage, if they avoid credit card cash advances and even how often they change mobile phone contracts.
This is all in an effort to build a better picture of what sort of borrower is behind the score, which should help prospective borrowers find ways to boost their creditworthiness.
Experian has said it wants to better reflect the three key factors that lenders look at in applications. These are:
- Affordability - how much you have coming in, how much is going out and how stable your employment is
- Credit history - how well have you managed credit in the past six years
- Lender records - what relationship have you had with that lender in the past and what additional information does it hold
Experian score bands
As part of the changes, Experian is also restructuring its score bands. Instead of being out of 999, Experian credit scores will now be out of 1250, broken into five bands:
Source: Experian/PA
The categories of "poor" and "very poor" have been replaced, as has the use of the colour red in Experian's score branding. This seems to be an effort to remove some negativity around lower credit scores, with an emphasis on the opportunity to make a score better.
Who will benefit from the changes?
Experian's changes will see a similar number of people jump up a credit score band as fall down one, though it is important to note that tenants will need to opt in for their rent payments to be counted.
Among those expected to benefit would be people with a limited credit history, as key to the changes is Experian taking into account financial decisions that do not involve borrowing money, such as paying rent. As a lack of data in your credit file can push your score down, incorporating more types of data into the calculation will push some scores up. Of course, if this data is negative, such as missed rental payments, the score would go down.
People who actively try to boost their score should benefit too, as there will be more ways to improve the data going to into the calculation, simply because a wider variety of data is being used.
Ultimately, how your score is calculated will not have an impact on how likely you are to get any particular loan, mortgage or credit card. This is because when you make an application, that provider will do its own calculations and assessments to decide whether or not you are creditworthy. The real key factors are your affordability and your credit history. If you can improve these, your chances of getting the product you want will go up and your score should improve as part of that.
You can find out more about what makes a good credit score by reading our article 'What is a good credit score – and how to improve yours'. You could also check out our Experian review.
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