When you apply for a mortgage, you need to convince the lender that you’re willing and able to make the monthly payments for the duration of the loan. The lender will look at your financial status, your income and outgoings and, probably most importantly, your credit score. If you’re a tenant at the moment, paying your rent on time can help to boost this score, so it’s important that you stay on track.
What is your credit score?
Your credit score is the rating created by the credit agencies that tells lenders how much of a risk you are when (or if) they decide to lend you money. The higher the score, the less of a risk you are and so the more willing lenders often are to offer you loans.
This score is compiled using your past and present handling of credit products – credit cards, overdrafts, loans and even mobile phone contracts. The credit agencies take into account how diligently you’ve maintained credit agreements in the past, as well as any defaults, late payments and so on you’ve racked up.
A rental contract isn’t a credit agreement, so how does it affect my credit score?
It’s not a credit agreement, no, but it is a contract that involves a monthly payment and responsibility. Paying your rent in full and on time each month shows that you’re serious about paying your bills and credit some reference agencies include rent payments in your score calculation.
Will my rental payments definitely feed into my score?
Not all credit reference agencies look at rental payments, but in recent years there have been a few initiatives that offer platforms to keep records of rental payments. The Rental Exchange lets landlords and tenants sign up to it so that records of their payments can be kept and used by the CRAs that include rental agreements.
Is it a good time for tenants to buy?
It’s possibly the best time for a while! Last year saw the reintroduction of 95% mortgages, which became very rare in recent years. There’s also the extension of the stamp duty holiday – until at least the end of March – which could save buyers up to £15,000, as well as an extension to the government’s Help to Buy Scheme. For many first-timers, the next few months could be the time to take that crucial first step onto the ladder.
