How Does Rent Affect Your Credit Score?

Want to build your credit history with your rent payments? Check out Borrowell Rent Advantage^™!

Traditionally in Canada, while mortgage payments were reported to Canada’s two credit bureaus, rent payments were not. That meant that no matter how good you were (or were not) about paying your rent on time, your rent payments had no impact on your credit score. In the last few years however, paying rent can affect your credit score thanks to a couple of new initiatives that allow landlords or even renters to report rental payments to one of Canada’s credit bureaus.

If you’re looking to build up your credit report and increase your credit score, reliably paying your rent and ensuring your rental payments are reported can have a positive impact on your credit worthiness. Read on to discover how a positive rental payment history can help raise your credit score.

How Can Rent Help You Improve Your Credit Score?

To understand why reliably making your rent payments can help increase your credit score, it’s essential to first understand how credit scores work. Your score is made up of five different factors that credit bureaus use to assess your overall credit score. These factors are: payment history, credit utilization, credit history, credit mix and credit inquiries.

Of all those five factors, payment history is given the most weight, accounting for 35% of your overall credit score. Because payment history is the biggest factor influencing your credit score, if you make your rent payments on time, you could really help boost your score and overall credit report.

Of course, there are two crucial caveats to keep in mind when it comes to rental payments and credit scores.

• Rent payments can only impact credit scores if they are actually reported to one of Canada’s two credit bureaus. If your landlord doesn’t report your payments, there’s no way for a credit bureau to know about them and so even if you’re the most responsible tenant in the world, your payments will have no influence whatsoever on your score.

• Rent payments can hurt your score as much as they can help it. If your landlord does indeed report payments to a credit bureau then it’s imperative to make your payments on time. If you don’t, missed and late payments will drag your score down and you risk being viewed as a bad credit risk and then possibly have a more difficult time finding housing.

What is Rent Reporting and How Does it Work?

Rent reporting is when your monthly rent payments are reported to at least one of Canada’s two credit bureaus, Equifax and TransUnion.

In Canada, there’s generally two main ways for rent to be reported:

• A landlord or property manager can report payments to a credit bureau: The Landlord Credit Bureau of Canada has a deal with Equifax whereby landlords can report rent payments (or non-payments) via a portal on their website.

• A tenant can sign up for Borrowell Rent Advantage^™: Borrowell has partnered with Equifax to allow tenants to report their rental payments — and there’s no need for your landlord’s approval to participate. It’s quick and easy to sign up by providing your lease information and connecting the bank account or credit card you use to pay rent. For a small monthly fee, Borrowell’s Rent Advantage program then takes care of the rest by verifying your rent payments using electronic banking records and then reporting those payments directly to Equifax.  

How Much Does Rent Reporting Help Credit?

Building up credit takes time and patience so signing up for a rent reporting program is not a short-term solution. That being said, you can generally expect to see a change in your score in as little as six months.

Does Applying to an Apartment Hurt My Credit Score?

Applying for an apartment can potentially hurt your credit score, depending on whether or not the landlord or property manager decides to do a credit check when they receive your rental application.

If a potential landlord wants to contact the credit bureau themselves and see both your credit score and your complete credit file, it would appear as a “hard check” on your file and temporarily decrease your score. However, you can possibly prevent a hard check if you yourself provide the landlord with a copy of your score and credit report. This can be a good move because, not only would it prevent a dip in your score, but it would likely look pretty impressive to a potential landlord that you were credit savvy enough to provide your own documents.

You can access your own credit info for free through Borrowell without impacting your credit score.

Does Not Paying Rent Affect Your Credit Score?

As mentioned previously, payment history is the single largest factor affecting your credit score. If you are late or skip a rent payment —even just one time — your score will likely take a hit. If you make it a habit to miss payments, you’ll soon have bad credit and it will be even harder to find your next apartment.

Can I Get an Apartment with No Credit History?

As noted above, not all landlords perform a credit check on potential tenants so it is possible to get an apartment with no credit history or sometimes even a bad credit history.

It is, however, likely that a property manager or landlord will check on your credit history. The reason landlords perform a credit check is because they want to know how creditworthy you are and whether or not you’re likely to make your rent payments on time. Because payment history makes up the biggest part of your credit score, a credit report generally provides solid insight into whether or not a person prioritizes making payments on time and in full. For obvious reasons, this is very relevant information to a property manager. If the landlord does do a credit check, it will very likely be a challenge to get them to overlook a thin credit history.

The good news is that if you have a history of bad credit or no credit history at all, there are some steps you can take to show a prospective landlord that you are creditworthy and will reliably pay your rent on time.

• Show your potential landlord that you have a regular source of income by providing them with your pay stubs or bank statements

• It’s always a good idea to have some character references from previous landlords if at all possible

• Some landlords may be willing to let someone with a good credit score cosign your rental agreement with you

• Explain why your credit score was low and what steps you’ve taken to fix the situation

The Bottom Line

It’s possible for your rent to not affect your credit score at all if your landlord doesn’t report your rent payments to a credit bureau. If, however, you are a responsible tenant and want to improve your credit score, signing up for a program that ensures your rent payments are tracked is a smart move. Just be sure not to fall behind on payments.