Housing ladder? What about those who can’t get on the credit ladder
There are plenty of column inches dedicated to getting more Brits on the housing ladder, but what about the credit ladder, asks Jono Gillespie
The government has made it plain it wants to help more people onto the housing ladder, but it talks far less about the people who can’t even take the first step onto the credit ladder. The ones who simply can’t access affordable credit to fix their car or replace a broken washing machine.
Financial exclusion in the UK is growing, with 20.2m adults now categorised as financially underserved – a 50 per cent rise since 2016. One in three adults faces barriers to mainstream credit, often leaving them without safe or affordable options. The impact is widespread: 13m people couldn’t cover a £300 emergency without borrowing, and more than 3m have turned to illegal lenders in the past three years. It’s a clear signal that the UK needs more inclusive, responsible credit solutions.
In 2023, over 5.5m UK adults were “credit invisible”, meaning they have no real credit history. While they may well be able to repay a loan, they are deprived essential financial products as lenders and other providers don’t have the data they need to make decisions.
My company, Evlo, has been a leader in the financial inclusion sector for nearly 20 years. As an independent personal loan provider helping customers with previous credit issues, we help customers climb the credit ladder by improving their credit scores allowing them to access mainstream finance. But we are one of the few.
Rental payment history needs to count for more
The FCA is considering letting rental payment history count more in mortgage affordability checks. It’s a step towards inclusion for home ownership, but inconsistent data means most lenders are unable to access or rely on the data. This leads to a consumer outcome lottery where years of paying rent might matter less than a phone bill, depending on who’s assessing them.
How can we ensure that renters’ history of paying, on average, more than 30 per cent of their income on housing costs is factored into mortgage affordability assessments? Simply, make it easier for renters to share payment data with credit reference agencies and require those agencies to factor it into credit scores.
As well as housing, this would also help the millions of credit-invisible adults who can’t access credit either to deal with urgent, unexpected expenses or to build a credit score to allow them to begin the journey towards mainstream financial inclusion.
We wouldn’t be starting from scratch. Some lenders, like Suffolk Building Society, have recently expanded lending criteria to take rental payment history into account. In the US, a government-approved underwriting tool also allows rental payment data to be considered for credit invisible applicants. Renters in Australia can opt to build their credit score as they pay rent through rental platforms, but, as in the UK, this does not happen automatically.
In the UK, the Treasury ran a “Rent Recognition Challenge” in 2017 to support third parties to facilitate this. But of the firms that received government funding, one charges renters up to £65 a year and the other charges up to £84 a year – no surprise then that, based on available user figures, these services are used by only 0.02 per cent of private renters in the UK.
One way of making it easier for renters to share payment data would be greater use of open banking. Requiring estate agents who receive commission from selling rental insurance to report credit data is another way of improving data availability.
Consumer Credit Act is a chance for change
The Treasury is currently reviewing the 50-year-old Consumer Credit Act, the legislation that governs consumer credit lending in the UK. This is a unique opportunity for the government to ensure that credit reference agencies consider rental payment data as a contribution to building credit history.
Sam Carling, MP for North West Cambridgeshire, having seen first-hand the barriers renters face, particularly young people trying to build their financial independence, is among those calling for change. He is supporting calls for rental payments to count towards credit scores to help constituents and millions nationwide who struggle to access credit for essentials or cope with unexpected costs.
“Thin credit files are stopping people who already manage rent payments from accessing the support they need to move forward. This is a simple, common-sense change that would make a real difference – helping people demonstrate their financial responsibility and, in many cases, take their first step onto the property ladder. I’m proud to support it,” he said.
Updating these rules would help level the playing field by addressing the inequality of how renters and homeowners are treated by the financial system. It’s a chance for the government to prove it’s serious about helping people onto the credit ladder, not just the housing ladder.
Jono Gillespie is CEO of Evlo