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Tenants are paying a lot in rent every month. Here’s how you can use your rent payments to build your credit history and credit score.
Being a young adult may afford you the freedom to live on your own. But for most people, that means renting a space—more than 80% of individuals aged 25 to 29 are renters. What’s more, younger Canadians who live in urban areas make up the largest group of renters, according to a study by RBC.
As you start your career and put money into your savings account, you’ll soon realize your credit history and credit score are important factors in getting approved for credit products. For instance, if you want a credit card, car loan, line of credit or mortgage, you’ll need a credit history and a decent credit score to prove to lenders that you will reliably make payments on time.
In the past, Canadians weren’t able to build their credit through renting. Fortunately, in recent years, new programs have launched to help renters build their credit history. Here, I’ll share how you can apply for these programs to help you reach your financial goals and become established later on in life, like buying a home. (Read: Renting vs. home ownership: Can you be financially secure without buying?)
Rent reporting is the process of sharing your rent payment history with the Canadian credit bureaus, Equifax and TransUnion. Your monthly rent payments show up on your credit report, and this vital information contributes to the calculation of your credit score. (If want to know your credit score, both Equifax and TransUnion offer free credit reports).
Unlike with bills for a cell phone, credit card and utilities, rent payments aren’t typically reported to the credit bureaus. You have to sign up with a rent reporting service in order to have this data shared on a monthly basis.
We can all agree that tenants do not want to be evicted because of late payments—it’s the reason many will prioritize their rent payments over other bills and expenses. And it’s why having this data shared with the credit bureaus can be beneficial in creating a credit history and boosting your credit score. However, know that your score can be negatively impacted if you miss a payment when using rent reporting services.
Today, Canadian tenants are paying exorbitant amounts for rent. In fact, the national average rent inched to a record of $2,117 per month in August, according to Rentals.ca. Without a doubt, if you’re paying your rent on time, it’s worth the time and effort to have that stellar track record appear on your credit report. Here are a few noteworthy programs you can use to do this in Canada.
The Landlord Credit Bureau (LCB) is a credit reporting agency that allows tenants and landlords to report rent payments to Equifax. Both the landlord and tenant need to be involved in this process. The incentive for renters is that it encourages them to pay their rent on time to prevent evictions and build their credit history, while landlords can see these reports for screening purposes.
Tenants have to sign up using the rent reporting platform FrontLobby. The company’s Basic plan is free and includes recording and tracking your lease details with your landlord. The Plus plan is $4 per month and includes reporting your rent payments to Equifax.
The Toronto-based startup Chexy allows tenants to pay rent with any major Canadian credit or debit card, and to build credit and earn rewards in the process. Plus, you don’t need to involve your landlord. When you create an account, all you have to do is upload your lease and enter your rent amount and due date. Then you connect your Canadian debit or credit card (Visa, Mastercard and American Express are all accepted). Your card is charged every month and Chexy e-transfers your landlord.
The service costs $1 per month if you pay with a debit card or 1.75% of your rent if you pay with credit. However, if you want your rent payments reported to Equifax, you’ll need to sign up for Chexy’s Credit Builder program for $9.99 per month (you can get a promo offer of $7.99 per month at the time of writing). If you opt to pay by credit card, you can use the company’s online calculator to see how many rewards (such as cash back and loyalty points) you will earn with the major credit card providers.
The Rent Advantage program offered by Borrowell allows tenants to report their rent payments to Equifax. Similar to Chexy, you aren’t required to involve your landlord. When you sign up for an account, you provide your lease information and connect your bank account or credit card information (Visa, Visa Debit, Mastercard and Debit Mastercard are all accepted). The service is available for $8 per month and you can cancel at any time. In addition to the Rent Advantage program, Borrowell allows you to compare credit cards, as well as mortgage and insurance rates. By signing up, you can access your credit report and credit score for free.
If you’re looking to level up your financial profile, there are other options to build your credit history and credit score from scratch. Here are a few strategies to consider.
If you’re a newcomer or fresh out of school, you may not have enough credit history to be approved for a traditional credit card; you may want to consider some of the newcomer and student credit card options available. Alternatively, you can get a secured credit card that requires a cash deposit that is used as collateral. A secured card can help you build or improve your credit score, but you’ll still be responsible for making payments on time and in full or else interest will accrue.
If you’re looking to get a small loan without an established credit history, a credit builder loan is an option. With a traditional loan, you get the money upfront, which you must then repay with interest over a fixed period of time. With a credit builder loan, the money you pay upfront is put aside for you, but you cannot access it right away. You make fixed monthly payments that include interest over a specified term, and the money is released to you in increments or in full once the entire loan amount has been paid. Credit unions, small banks and online lenders offer credit builder loans. These loans charge high interest, so be sure you can make your payments on time. (Did you know there are loans created specifically for paying rent in Canada?)
Having a post-paid cell phone plan can help you build your credit. When you make your payments, the major cell phone providers will report this to the credit bureaus. Be sure to pay on time and in full so that it positively affects your credit score.
Rome wasn’t built in a day and neither will your credit history and score. Learning and mastering different credit building techniques will take time. But building good financial habits now will help you down the road when you’re looking for the offers on credit products or to get approved with a new landlord. Hopefully, with the above tips in mind, you’ll be well on your way to getting the credit you deserve.
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Unfortunately this statement isn’t quite true. “Rent reporting is the process of sharing your rent payment history with the Canadian credit bureaus, Equifax and TransUnion.” Currently none of the rent reporting services availible report to Trans Union. Only Equifax.
Well written. I appreciate the research and effort.