A common way to build credit is by making consistent payments. Making mortgage payments or paying your credit card in full every month can benefit your credit score. However, not everyone has a mortgage, and people often carry debt month to month. In recent years, there have been several options for renters in Canada to use rent payments to build credit. This is especially helpful for people with limited credit history, or people looking to improve their credit scores.
Rent reporting services
There are several rent reporting services in Canada. Using these services can potentially contribute to your credit history and payment history, in addition to improving your credit score:
A user-friendly service that reports rent payments to Equifax. It does not require landlord involvement. Some of their users with credit scores below 600 have reported an average increase of 32 points within just seven months. It costs $8 per month. There is also a one-time optional fee of $59 to report up to 24 months of past rent payments. This feature can help you build your credit and payment history faster.
Allows tenants to report rent payments. It requires landlord participation. Users reported improvements of 36 to 84 points within the first six months. Tenants pay a $48 annual fee (equivalent to $4 per month). Landlords need to make a monthly payment of $19.90 as well. However, it’s possible to pass this cost on to the tenant.
Landlord Credit Bureau (LCB)
Tenants can create an account with LCB to establish a payment history. It requires landlord involvement. Tenants pay a $48 annual fee.
Reports to Equifax. Charges 2% of the monthly rent amount. For example, if your rent is $1000, your fee would be $20 per month.
Rent reporting is integrated into their financial services app. There is no additional cost mentioned for basic rent reporting. They have paid premium plans with added features. However, you must make rent payments through a Koho account to be eligible to use this service.
How does it work?
When you sign up for a rent reporting service, your payments will be reported to the credit bureaus, eg, Borrowell sends their reports to Equifax. Currently, all rent reporting services report directly to Equifax. TransUnion, the other large Canadian credit bureau, does not include rent in its credit score calculations yet. By reporting rent to credit bureaus, renters may notice a difference in scores between both bureaus. It is advisable to review and monitor both scores regularly.
Benefits of rent reporting
Improve credit score and payment history
Consistent, timely payments can boost credit scores, especially for people with limited credit histories. It can also help you establish a positive record as a tenant.
Access to financial services and credit instruments
A better credit score means easier access to credit instruments like loans, mortgages, or even credit cards. A higher credit score also makes you eligible for better interest rates. With rent reporting, you can build credit without taking on any additional debt.
Financial responsibility
Rent reporting to build credit can help people develop better financial habits via timely payments. This is even more helpful if you’re just starting out with using credit, are a college student, or have limited credit history otherwise. It could even be beneficial for new immigrants to boost their credit scores. Immigrants have to start from scratch in terms of building credit, so being able to use rent payments to show their financial responsibility is helpful.
Equitable
Homeowners usually have the benefit of building their credit history when they make mortgage payments. With rent reporting, rent payers can now build credit like homeowners do when they make mortgage payments.
Good for landlords
There have been instances of renters refusing to pay rent or vacate, leaving landlords in a bind. Signing up for a rent reporting service can provide some relief to a landlord, knowing that there are higher stakes attached. If someone skips out on their rent payment, they will see the effects on their credit score. This will make it less likely for people to choose non-payment of rent if they can afford to pay it.
Potential drawbacks
Rent reporting is a great way to build your credit history and credit scores. However, this depends on how regularly you make timely payments. Building good financial habits can help you in your financial journey towards being debt-free. However, not paying on time impacts credit negatively. If your credit is affected negatively, you may find it difficult to qualify for credit. Even if you are approved with lower credit scores, you may have access to smaller amounts or higher interest. You may also face low chances of approval from lenders for loans and mortgages.
Mortgage rates are high, so everything you can do to improve your credit score helps. Many people are currently renters and eventually want to get into the housing market. If you’re aiming for homeownership, it is important to keep your credit history clean. This shows reliability to lenders and can help you get better interest rates in the future.
Federal and private Initiatives
The Government of Canada has proposed a Renters’ Bill of Rights, which proposes including rent payments in credit score calculations. It was introduced in March 2024. However, private services and credit bureaus have been working on rent reporting before then.
Equifax partnered with FrontLobby to start a rent reporting program in 2018. The Landlord Credit Bureau (LCB) partnered with Equifax in 2020 and allows landlords to report tenants’ rent payment habits and history. By 2022, Borrowell entered the market with a tenant-oriented program that did not require landlord involvement. The same year, FrontLobby and Equifax released findings from their multi-year study around rent reporting. They found that rent reporting could substantially improve the financial well-being of rent-paying Canadians.
In 2024, the federal government introduced the Bill of Rights. The 2024 federal budget also showed a focus on this as well. The government asked financial institutions and credit bureaus to prioritize launching tools for renters to opt-in to this reporting service. Equifax and associated rent reporting services were already prepared when the government put out the call for including this in credit history. By paying attention to market demand and their emphasis on financial inclusion, Equifax is ahead of the curve.
Key takeaways
Rent reporting can help you build credit simply by making regular rent payments. In recent years, there have been many rent reporting services that can help with this. Using rent reporting to build credit can help in many ways. You can improve your credit score and payment history, get access to financial services and credit instruments, and showcase financial responsibility. In 2024, the Canadian government also proposed a Renters’ Bill of Rights. They called on financial institutions and credit bureaus to create tools that can help renters easily opt for reporting. Equifax, one of the main Canadian credit bureaus, has already been working on this since 2018. There are many benefits to building credit via rent reporting, even if you are dealing with debt and have low credit scores otherwise. If you’re currently dealing with debt, reach out to our trained credit counsellors for advice on debt relief strategies.
