Experian is rolling out a new version of its credit scoring model in the UK that, for the first time, takes rental payments into account. Renters who consistently make payments will now see this reflected in their credit assessment, potentially improving their prospects for future mortgages.
The updated model also considers other behaviors increasingly valued by lenders, such as reducing overdraft use, avoiding credit card cash advances, and making regular payments on phone contracts, in addition to rent.
The changes include an expanded score range, from the previous 0-999 scale to a new maximum of 1,250. Experian has also revised the score bands and removed labels such as “poor” and “very poor.”
The changes are not expected to have much of an impact on the average credit score. Experian estimates that about 44% of borrowers may move down a score band, while 42% could move up.
The new scoring model will initially only apply to borrowers in the UK and Ireland. Although Experian has not commented on plans to introduce it in the U.S., it could be considered if the model proves effective overseas.
Tweaking the Model
Credit rating agencies have recently experimented with changes to their scoring models to better reflect modern consumer economics. FICO introduced two new credit score models that incorporate buy now, pay later (BNPL) data into their calculations.
As Experian expects with its rental model, incorporating BNPL information had minimal impact on overall scores. After examining BNPL loans taken out through Affirm, FICO found that these loans affected credit scores by around 10 points for more than 85% of the customers surveyed.
Medical Debt Goes Out and In
Earlier this year, the Consumer Financial Protection Bureau (CFPB) banned medical bills from being considered on credit reports. Its research found that medical debts have little correlation with a borrower’s ability to repay other types of debt. The research also highlighted that consumers frequently receive inaccurate bills or are asked to pay charges that should have been covered by insurance or financial assistance programs.
The decision would have removed roughly $49 billion in medical debt from the credit reports of about 15 million Americans. However, the Trump administration reversed that decision and has sought to prevent individual states from excluding medical debt in credit scores.
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