Tenants who pay rent with a Starling Bank account can now choose to have these payments count towards their credit scores, potentially boosting their chances of buying a home.
Where tenants opt into the scheme, Starling Bank will share information about rental payments with CreditLadder – all within its existing banking app.
The partnership will allow renters to build up a history of on-time payments on their Experian credit file. In time, CreditLadder expects this could help renters improve their credit score and access better deals on credit cards, loans and mortgages.
But are any mortgage lenders actually using this information to decide your application?
Which? explains how the new partnership works, which other banks allow you to share rental payment data and whether lenders are factoring in rental payments to their decisions.
How will it work?
Starling Bank customers will be able to share their information with CreditLadder through Starling Marketplace – an area on the bank’s app with a selection of third-party financial services.
CreditLadder will access your payment information using Open Banking technology, which allows the firm to ‘plug-in’ to your current account data in a secure way.
Starling Bank claims it’s a unique partnership, as their customers can manage the whole process within the existing banking app and without needing to share their log-in details.
When you’re setting up, you’ll have to provide your landlord or letting agent’s details, though you don’t need their permission to use CreditLadder.
Starling Bank says users will be in complete control of the data they share and can choose to opt-out at any time.
Find out more: Open Banking explained
How will it impact credit scores?
Once you’ve opted-in, CreditLadder will be able to track your rental payments and add this information to your Experian credit report.
This could help those with a ‘thin’ credit file, who have very little information on their credit report, making them less attractive to lenders.
In particular, your credit history will influence whether a lender will approve your mortgage application. While tenants pay thousands of pounds in rent each year, this hasn’t typically been recorded on credit files or counted towards credit scores – leaving many renters struggling to prove they could pay a mortgage.
Experian says it will update credit scores once it gets feedback on how lenders are using the rental payment information in their assessments. It estimates 79% of tenants will see a noticeable improvement in their credit score if lenders were to take the rental data into account.
We asked CreditLadder if it would be reporting to other credit reference agencies (CRAs). The firm told Which? it’s in the process of adding a second CRA within the next three months.
Which banks let you share rental payment data?
Starling Bank isn’t the first to allow users to share their current account information with CreditLadder.
Customers that pay their rent from Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds Bank, Metro Bank, Monzo, Nationwide, NatWest, RBS, Santander, Revolut or TSB account can also benefit.
However, you will need to sign up through CreditLadder to access this service, whereas Starling Bank’s partnership offers a way to manage it through your banking app.
Find out more: challenger and mobile banks
Can CreditLadder help you buy a home?
Experian credit reports have included rent payments for tenants using CreditLadder or other rent-reporting platforms since October 2018.
But so far, Nationwide is the only major lender to actively work with CreditLadder to use the information to help first-time buyers on the property ladder.
When Which? asked other mortgage providers if they were using CreditLadder data, or any other rent-reporting platform’s information in lending decisions, none confirmed they did.
TSB, Metro Bank, Post Office Money, Bank of Ireland, Coventry Building Society, Newcastle Building Society, Furness Building Society and Principality told Which? they don’t currently use CreditLadder’s rental payments in their assessment for mortgage purchases.
Santander told Which?: ‘We don’t draw from CreditLadder directly; rather we look at the information that is reported on a customer’s credit file as part of our lending decision and obligation to ensure the mortgage is suitable for the customer.’
CreditLadder says it plans to work with a number of lenders directly, Nationwide Building Society being the first.
Right now there is little evidence that lenders have worked out how to use rental payments in their risk assessments, but CreditLadder is confident the breakthrough is coming.
A spokesperson told Which?: ‘A number of lenders we have spoken to are keen to understand how historical rent payments can be built into lending decisions. Lenders have been really positive and a number of them are testing the data in their decision-making systems.’
Find out more: how to boost your credit score