Can Your Rent Payments Help You Build Credit?

According to recent Government statistics, there are more homeowners in the country than there are renters and subletters. In fact, a 2011 National Household Survey showed that close to 70% of Canadians have bought their homes. So, only 30% of people are acquiring their housing through some sort of rental or sublet agreement.

Even though the average cost of renting can be lower than buying a house in some areas, it seems that many people prefer the perks of homeownership. One of the perks of buying a house is that your mortgage payments can help build your payment history, which may help improve your credit scores. Unfortunately, this hasn’t always been an option for renters. 

At least until now. With the recent introduction of the Landlord Credit Bureau (LCB), Canadians can now use their rent payment to help them build credit. 

Can Your Rent Payments Help Build Your Credit History?

As mentioned, it wasn’t until 2020 that landlords started being able to report their tenant’s payments to a credit bureau. Luckily, Landlord Credit Bureau (LCB) recently collaborated with Equifax to form a deal that allows rent payments to show up on your Equifax credit report and count toward the calculation of your Equifax credit score (if you check your TransUnion credit score, you will likely not see your rent payments).

Although this is a relatively new idea in Canada, other places in the world have already introduced similar landlord rental reporting platforms. For instance, in the United States, companies like Rental Kharma and Rent Reporters send their rental payments to the American branch of TransUnion, while Cozy reports to Experian.

All this to say that, yes, your rent payments can now help build your credit, as long as you’re a good tenant and your landlord reports to Landlord Credit Bureau. 

Find out who are Canada’s biggest credit bureaus.

How Can The Landlord Credit Bureau (LCB) Help You Improve Your Credit?

Landlord Credit Bureau (LCB) is a consumer reporting agency that allows tenants to establish their payment history through their monthly rent payments, which may help build their credit. To get started, a tenant should create a free account with LCB. With your account, you will have access to your Tenant Record where you view your payment details. You can also invite your landlord to join LCB and view your Tenant Record as well. 

Now that you have an account with LCB…

• You can initiate Rent Reporting
• LCB will report your monthly rent payments to Equifax
• A registered trade line will appear on your credit report
• As you make on-time rent payments it may help build your credit

What Landlords Can See… 

Landlord Credit Bureau allows landlords to check your Equifax credit report, the file that contains a record of all your credit-related actions over the past 10 or so years. They may check your report and credit scores when you apply for a lease, so they can get a better idea of how responsible you would be when it comes to making rent. 

USING LCB PLATFORM, YOUR LANDLORD CAN ALSO:

• Manage their property, tenants’ profiles and payments with the latest software
• Check a potential tenant’s rent payment history and reviews from other landlords 
• Avoid future losses and earn various benefits for continued good behaviour
• Help you (the renter) build a payment history by sending your rent payments to Equifax
• Update and report a tenant’s payment status (how many days late, etc.)
• Collect payments and deal with delinquent accounts much easier than before 

What Tenants Can See… 

If you’re a renter, you can use the Landlord Credit Bureau platform to develop your tenant history and obtain benefits of your own. You can even create and monitor your own profile, as well as verify potential landlords or review the ones you’ve had in the past. The better your profile looks, the easier it will be to find and access good rental units.  

Your LCB tenant account allows you to make sure:

• That someone is a legitimate landlord with a good reputation among past tenants
• You (and other tenants) can avoid bad landlords, scammers, and slumlords 
• Your good payments are properly reported, which may help improve your credit
• Landlords can see how responsible you are at paying your rent 
• That you have a higher chance of approval for the rental(s) you want

Check out if you can rent an apartment with bad credit.

How Can Tenants Benefit From Rent Reporting?

As you can see, perhaps the greatest thing about landlords being able to report your rent to LCB is that your payments can help build your payment history on your Equifax credit report. After all, just because someone has poor credit, doesn’t mean they aren’t good at paying their rent on time. Here are some other benefits that come with rent reporting:

• Helps Establish A Payment History – Rent payment reporting is especially helpful to renters with thin credit profiles, those who are new to Canada and people who are trying to rebuild their credit from past debt problems. 
• Better Access To Credit – As you rebuild your payment history, it’ll likely become easier for you to access large amounts of credit, good payment plans and low-interest rates.
• LCB Perks – If you’re a responsible renter and your landlord reports you as such, you’ll qualify for various LCB benefits and be a more attractive tenant to future landlords.

Additional Reading

What Is A Credit Inquiry?

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New Immigrants: Establishing Credit

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How to Budget to Improve Your Credit Score

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What Are The Drawbacks Of Rent Reporting?

Although there are several credit-related benefits of landlords being able to report your rent, it’s equally important to watch out for these potential drawbacks:

• May Damage Credit – Just as on-time rent payments can help build a positive payment history, late or missed rent payments can do the opposite, which may negatively impact your credit scores. 
• Difficulty Qualifying For New Credit – If your rent payments are negatively affecting your credit, it can lead to low chances of approval from lenders, as well as smaller amounts of credit, stricter payment plans and higher rates.  

Check out 10 common mistakes renters make. 

How To Build Your Credit Scores In Canada?

Depending on the credit scoring model used and the information reported to the credit bureaus,  the calculation of your credit scores will vary. Meaning when you check your credit scores with Transunion, Equifax, or any third-party credit score provider, they all may be different.

However, there are generally five common factors that are used to calculate your credit scores. Understanding how these can impact your credit scores can help you develop financial habits that can help improve your credit.  

• Payment History (~35%) – Your debt payments generally make up the biggest portion of your credit scores. As such, be sure to pay your debts (including your rent) on time and in full to help build a positive payment history.  
• Debt-To-Credit Ratio (~30%) – The more unpaid debt you carry, the higher your debt-to-credit ratio. This could potentially negatively affect your credit scores. In general, lenders like to see a debt-to-credit ratio of 30% or below. 
• Credit History (~15%) – While your account history generally has less of an impact on your credit scores, it can still be a deciding factor for landlords and lenders. Essentially, the longer and more responsibly you use a credit account, the more likely it may improve your credit scores.
• Credit Inquiries (~10%) – When lenders check your credit, a hard inquiry goes on your report, which may drop your credit scores slightly. In general, it’s best not to apply for too many new credit products within a short period of time. 
• Public Records (~10%) – Bankruptcies, debts in collections, lawsuits, and other derogatory remarks on your credit report can also impact the calculation of your credit scores.

Bottom Line

For years Canadian renters have not reaped the benefits of making on-time rent payments. But now, with the introduction of the Landlord Credit Bureau(LCB), renters can use their rent payment to help build their payment history which in turn may positively affect their credit scores.