The Loans Canada team sits down with Gary Schwartz of the Canadian Lenders Association to talk about open banking.
Can Your Rent Payments Help You Build Credit?
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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/sublet agreement.
Even though the average cost of renting can be lower than buying in some areas, it seems that many people prefer the perks of homeownership. For example, your mortgage payments can appear on your credit report and increase your credit score, which hasn’t always been an option for renters.
At least until now. Given the sheer number of renters in Canada, that means a lot of people, including yourself, could be missing out on a better credit score. Interested in learning how your rent payments can help you build credit?
Check out 10 common mistakes renters make.
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 recently collaborated with Equifax to form a deal that allows rent payments to show up on your credit report and count toward improving your credit.
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 Connect.
All this to say that, yes, your rent payments can now help build your credit, as long as you’re a good tenant and you or your landlord reports to Landlord Credit Bureau.
Find out who are Canada’s biggest credit bureaus.
How Can Landlord Credit Bureau Help You Improve Your Credit?
Landlord Credit Bureau (LCB) is a consumer reporting agency that allows tenants to build positive credit through their monthly rent payments. 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 your credit will reflect this new trade line
Check out how your payment history affects 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 score 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 credit by sending your good 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 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 and 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 improve the look of your Equifax credit report. After all, just because someone has a poor credit score, doesn’t mean they aren’t good at paying their rent on time. Here are some other benefits that come with rent reporting:
- It’s 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.
- As you rebuild your credit, it will gradually become easier for you to access large amounts of credit, good payment plans and low-interest rates later in life.
- 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.
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:
- Just as rent reporting can help improve your situation, it can also be a major detriment to your credit if you don’t make payments on time.
- Remember, every late or missed payment damages your credit.
- At the same time, worse credit leads to worse chances of approval from lenders, as well as smaller amounts of credit, stricter payment plans and higher rates.
How to Build Your Credit
Whether your landlord reports your rent payments or not, there are fortunately a few different ways to build and improve your credit as a whole. One of the best ways to get started is to understand the 5 factors that cause your credit score to fluctuate:
- Payment History (35%) – For obvious reasons, your debt payments make up the biggest portion of your credit score. Be sure to pay your debts (including your rent) on time to see the best results when you apply for credit down the line.
- Current Debts (30%) – The more unpaid debt you carry, the worse your credit score and future approval chances will be. This is a particular problem with revolving credit (credit cards, etc.), where minimum payments are allowed.
- Credit Length (15%) – While your account history has less of an impact, it can also be an important deciding factor for landlords and lenders. Essentially, the longer and more responsibly you use a credit account, the better the outcome.
- Credit Inquiries (10%) – When lenders check your credit, a hard inquiry goes on your report, dropping your score slightly. This doesn’t happen with landlords but it’s best not to apply for new credit too often, especially if you get denied a lot.
- Credit Account Mix (10%) – It’s not smart to have more debt than you can handle. However, using a variety of credit products responsibly is good for your score. Not to mention, landlords will have more faith in your ability to pay rent.
For years Canadian renters have not reaped the benefits of making on-time rent payments. But now, with the introduction of Landlord Credit Bureau, consumers can see their credit report positively affect when they make their rent payments on time.
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