In light of the findings, Chris Hutchinson, chief executive officer of Canopy, shares his top tips to help renters begin to take their first steps onto the property ladder.
Regularly check your credit report
Many people only realise their credit score may impact their ability to borrow when it’s too late and they’re applying for a mortgage or looking to secure a lower insurance premium. If you can start early in adult life to consciously build up your own credit rating, then it puts you in a better position to borrow money for life’s big milestones in later life.
A good first step is to check your credit report, which you can do via credit reference agencies – the leading UK sites being Equifax, Experian and TransUnion. This report will give you your credit information, even if you don’t own credit cards.
Getting into the habit of checking this regularly, ideally every year, will give you a full, up-to-date picture of your creditworthiness.
Make use of rent payments
Rent can be one of the biggest costs that people commit to every single month, for years – amounting to approximately 45.5% of people’s salary on average, and up to 75% for private renters in cities like London.
It would therefore be amiss to not factor it into building a strong credit score. If you’re a tenant and you can show that you’re paying rent on time, every month, then it’s worth signing up for services which can help make your credit report reflect this.
Platforms like Canopy can track and record your rent payments and then report the regular payments to the leading credit referencing agencies. It’s a free service which will undoubtedly build up your credit history, while the paid version of the service will also improve your credit score.
Don’t let bills bring you down
Lots of us have various bills for utilities and contracts and this payment information can be shared with credit agencies. From gas and electricity bills, through to our mobile phone contract, these smaller regular payments could impact your credit rating if not paid on time.
If you miss or default a payment it can potentially affect your chances of receiving credit later on. While it may seem obvious, it’s important that your payments are made on time – setting up a direct debit is usually the best way of ensuring this.
Sweep money into savings (every penny counts)
The money that you’re setting aside each month can do more than just sit in your main bank account. It’s a good idea to sweep the cash into a separate savings account that you don’t touch, like a regular saver which offers more attractive interest rates, or lock it away into a fixed-rate savings account where it grows over a number of years.
Some bank accounts allow you to round up your payments and sweep the extra money into a separate pot, which you can earn interest on. Even though it’s just pennies, this method can really add up and build your savings over the years without you even noticing.
Make use of Government support schemes
There are a number of Government support schemes that aim to help people get their foot on the property ladder, so it’s worth doing some research and seeing which, if any, will suit.
For example, the new Help to Buy equity loan scheme offers first-time buyers a loan of up 20% on a deposit (40% in London) for new-build properties, which you can pay back interest-free in the first five years. Whereas the new 5% deposit scheme supports buyers struggling to raise a deposit for their first home.
Alternatively, opening a Lifetime ISA means that you can save up to £4,000 a year toward your first home, and the money will be topped up by 25% each year. All of these schemes come with small print and drawbacks, so it’s important to work out which one best suits your needs, or if you want to use any at all, and then work out how it’ll impact your savings plan.
*Chris Hutchinson is the chief executive officer of Canopy