A massive 93 per cent of social housing tenants would receive a welcome boost to their credit ratings if information about their regular rent payments is shared through the Rental Exchange.
This additional insight will enable many previously ‘thin’ credit files to be enhanced with more information on how tenants are paying their rent, which could enable you to lend to more people.
What is the Rental Exchange?
The Rental Exchange is a partnership between Experian, and Big Issue Invest (the investment arm of The Big Issue) to deliver the initiative in the social housing sector.
New analysis of rental payment records from a range of housing providers reveals that the vast majority of social housing tenants, many of whom may currently be excluded from affordable credit and other services due to a lack of a credit history, would see positive benefits.
How does it work?
Through the Rental Exchange, both social and private housing providers will be able to submit information about the rent their tenants regularly pay. The tenants’ payment history will be factored into credit decisions, securely and compliantly, to significantly improve the level of insight available to help credit providers assess risk and affordability. This will ultimately help to open up access to more affordable credit for tenants by enabling them to more easily demonstrate their creditworthiness.
This initial analysis clearly shows the overwhelmingly positive impact the Rental Exchange will have, so the more housing associations that start to share data with us, the more we can help address the problem of financial exclusion in the UK.
How will it help lenders?
Bringing rent payment information into lenders’ credit and affordability checks will provide a more comprehensive view of tenants’ financial circumstances. As these consumers’ credit files become thicker, this will provide more insight on your customers, which should provide you with a greater range of credit-worthy customers to lend to.
Also, importantly, many tenants have historically struggled to prove their identity, particularly if they don’t drive or travel abroad. Tenants with little or no credit history struggle to pass these online checks. But by including tenants’ rent payment information on their credit reports, 88% will be able to prove their identities online more easily, compared to 65% now.
What are the statistics?
Experian analysed a sample (c 24,000) of the rent payment records already shared with Experian’s Rental Exchange. Experian’s key findings were:
- 20 per cent of social housing tenants have credit scores just below a typical mainstream lender’s pass mark. By adding rental payment data, these scores will be pushed into a higher bracket giving them potential access to mainstream lending and enabling them to avoid more expensive alternatives. When applied to all social housing tenants in the UK, this could mean that up to 1 million people could gain access to cheaper credit and see their financial outlook improved.
- Up to 66 per cent of social housing tenants who currently fail electronic identity checks to qualify for a range of basic, but vital services, have the potential to pass identity checks if rental data is added to their credit history. Many lenders and other online service providers routinely use and rely on identity verification services that use credit history information as evidence of name and address.
- In total 88 per cent of tenants will be able to prove their identities, with rental payment information added to credit reports, compared to only 65 per cent without.
What are the benefits to tenants?
The Rental Exchange will enable more people to qualify for a range of additional services, often services they have struggled to gain access to in the past, such as current accounts. Furthermore, the on-going addition of rental payment data will enable tenants who still fall short of qualifying for mainstream credit to build a good payment history, helping to improve their credit scores over time, widen access to credit and save them money with cheaper deals.
Experian and Big Issue Invest are actively working with over 160 social housing providers representing over 1.9 million tenants and it is expected that by the end of the year a third of these records will be in the Rental Exchange. The next stage of the scheme, which will commence next year, will be to feed the data into lenders’ credit decisions. You can also see our infographic on the benefits for tenants and housing providers.
Visit the site for further information about the Rental Exchange or how to get involved.
What do you think? How do you think the Rental Exchange will provide better access to credit for consumers and more insight to lenders? Please leave your comments below.