How to Rent an Apartment with Bad Credit in Ontario

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Many Canadians are aware that having a good credit score can give them improved odds of getting a loan with a good interest rate and increase their chances of successfully applying for a premium credit card. Few people, however, may realize that a poor credit history could potentially prevent them from renting an apartment in Ontario. 

That’s because many landlords will do credit checks on potential tenants to see their credit score and credit report. Right or wrong, many landlords believe that a person’s credit score gives them an additional insight into whether or not a would-be renter is creditworthy and responsible with money, and will therefore pay their rent on time. 

While the role a bad credit report or score can play in your rental application can’t be underestimated, the good news is that there are ways you can improve your chances of renting an apartment, even with bad credit. Options include things like providing a previous rental or job reference, and showing you have solid savings. Read on to find out more.

Provide References

If you have bad credit, the key is to focus on showing a potential landlord that you’re trustworthy and will make a good tenant. Luckily there are other ways than relying on credit scores to demonstrate that you’re responsible. When renting an apartment with bad credit, providing solid references is a good way to demonstrate your reliability.

Try to approach applying for an apartment as seriously as you would applying for a job. Be organized and prepared, and get references that show off your best character traits. Landlords will generally want to see the following kinds of references from their tenants:

Previous Landlord References

Obviously, the kind of reference most likely to mitigate a bad credit score is a reference from your previous landlord. You’ll want a reference that highlights your rental history and emphasizes things like how you always made your rental payments on time and in full, and how you kept the accommodation well maintained. 

A letter praising your tenancy can go far to help offset any concerns a potential new landlord may have about your sense of financial responsibility. Keep in mind that a landlord is likely to contact a rental reference you provide, so be sure that any contact information you give is accurate and up to date. 

Character References

While a rental reference is the best chance of offsetting the damage of a bad credit score, a personal reference from someone who knows you well, like a former employer, may also help boost your profile as a possible tenant. Just note that a reference from your mom is likely not going to be taken too seriously!

Credit References

You may also want to try to provide reference letters from creditors with whom you have a good financial relationship. These creditors can provide evidence that your low credit score is just a temporary hiccup on what is otherwise a strong history of good financial management. If you’ve been with your bank a long time, they may be willing to provide a credit reference, for example. 

Employment Letter

Showing that you have a solid employment history and a stable current job will also help buttress your rental application and give potential landlords confidence that you’ll be capable of making all your rent payments. Get a letter from your current boss that states how long you’ve been employed and what your income is (be prepared to provide a recent pay stub from your current employer). If you’ve been with your present employer for a long time and have a good relationship, you may also ask that they include something about your reliability as an employee and your job performance. 

Provide Proof of Savings

Another good way for tenants to offset the uncertainty that a negative credit score can cause is by showing a property owner that you have a nice chunk of savings set aside — savings that could easily cover the first few months of rent. A solid savings account shows that you are financially disciplined and are skilled at money management. Landlords may simply need to see a bank statement, or may want something more official like a signed document from your bank detailing how much savings you have. Speak to your bank about what proof of savings options you may be able to offer a property manager.

Note, however, that even a signed document from the bank may not be very persuasive as you could simply spend the money whenever you want (the bank has no way of making sure the money in your savings account stays put, so to speak). For this reason, landlords will differ on the emphasis they give to an applicant’s proof of savings. Bank statements that show you’ve maintained a strong level of savings over several years will have more impact than a statement that just shows your banking over the last month. 

Look for an Apartment That Doesn't Require a Credit Check

One of the best ways to overcome renting an apartment with bad credit is to simply look for accommodations that don't require a credit check in order to be rented. In Ontario, however, it can be hard to find landlords who don’t check credit scores because section 10 of the Ontario Residential Tenancies Act allows a landlord  to use “income information, credit checks, credit references, rental history, guarantees, or other similar business practices” to select a tenant.

Most professional landlords or property managers that oversee large apartment buildings will almost always do credit checks and don’t have a lot of flexibility or incentive to skip this step. However, non-professional landlords like those who are simply renting out a condo or basement apartment in their home are less likely to check credit scores. You may also want to consider trying to sublet an apartment, which is when you rent an accommodation not from the landlord, but from the original tenant (this option can be particularly popular in towns with universities where students go back home for a period of time each year).

Consider Getting a Co-signer Or A Lease Guarantor

Co-signers or lease guarantors are close friends or family members who co-sign the lease and agree to cover the rent if you can’t make all the payments. The co-signer will normally have to have a good credit file and score to be accepted by the landlord. Landlords are more likely to go for this option because the co-signer is legally bound to make payments if you can’t, and so the landlord doesn’t take on any financial risk. 

Having someone co-sign a lease is really an option-of-last-resort because it can put terrible financial pressure on the person sharing responsibility for the rental payments, and should only be done if you’re sure you won’t default on your rent payments.

Another possibility would be to consider getting a roommate to help cover the cost of a rental apartment. However, you would need to be certain you get along well with the person and trust them to be responsible with rent payments because you could be responsible for the entire amount if your roommate defaults.

Give a Bigger Deposit

Normally when you rent an apartment in Ontario (and in some other regions in Canada) a landlord will ask for first and last months’ rent. They then hold on to last month’s rent to act as a security deposit in case you default on a monthly payment. 

It can be tempting to offer to provide a larger security deposit to a landlord to help you get an apartment with bad credit. For obvious reasons, offering a larger deposit will appeal to many property managers and can help counteract a history of bad credit. It’s important to understand, however, that in Ontario, section 106, subsection b of the Residential Tenancies Act makes it illegal for landlords to ask for more than one month’s rent as a security deposit.  

What Do Landlords Look For On A Credit Report?

Each individual landlord may have their own set of factors that they take into account when looking at a credit report and deciding on a required minimum credit score. It’s a good bet, however, that the following three things will be major considerations when looking at your credit report:

• Payment history: There’s a reason that payment history makes up the biggest part of your credit score. Credit bureaus weigh payment history so heavily because it’s considered the best indicator of your creditworthiness and how responsible you are with your financial obligations. By looking at your payment history, landlords can see how often you may have missed making payments to any of your creditors and thus get a good sense of whether or not you’ll pay your rent in full and on time each month.

• Debt load: A credit report tells landlords how much debt you’re carrying. If you’re drowning in a mountain of consumer debt with outstanding credit card and loan payments, it’s likely that a property manager will decide you can’t afford to make regular rent payments every month. 

• Bankruptcy or charged-off accounts: In Canada, one of the largest red flags for landlords would be if a potential tenant ever declared bankruptcy, meaning they were unable to pay a number of outstanding debts and so those debt obligations were discharged (potentially leaving creditors with nothing). Bankruptcies can stay on your credit report for up to seven years (or 14 if you have more than one bankruptcy on file) and it will be an uphill battle to get your rental application approved with a history of bankruptcy. Charged-off accounts (accounts where you didn’t pay off the amount owing) and consumer proposals (where you pay off only a percentage of your debt) can also be major road blocks for those looking to rent.

What is The Minimum Credit Score Required To Rent An Apartment?

The minimum credit score needed to rent an apartment in Canada will vary, but generally you can expect to aim for a credit score of 660 or higher. A score of 660 puts you in the “Fair” range and you should have a good chance of having your rental application approved. Aiming for a score of 713 and above would improve your chances even more because it moves you into the “Good” range of credit scores in Canada.

How to Improve Your Credit Score

If you are looking for an apartment and you have bad credit, it can be easy to grow frustrated as your rental applications don’t get the positive response you hoped for. Don’t give up. If you work hard to improve your credit score, you’ll be able to dramatically improve your rental options. Here are some steps you can take right away to get your credit score on track:

On-Time Payments

As noted above, payment history is the most important factor that goes into a credit score, accounting for 35% of your overall score. The single best thing you can do to improve your number is to ensure you pay all your creditors on time and never miss a payment. Consider setting up automatic payments if you have trouble keeping track of when payments are due.

Secured Credit Cards

Getting a secured credit card is another significant step towards upping your score. Even if you have a history of bad credit and have had trouble applying for regular credit cards, there’s a strong chance you’ll be approved for a secured card. That’s because secured cards require the cardholder to put down a deposit as collateral against non-payment. In this way, the creditor doesn’t take on any risk and is therefore much more likely to approve all kinds of applicants, including those with a shaky credit history. 

Credit Builder Loans

Credit builder loans are not like traditional loans. Instead of receiving money upfront, you make payments into an account automatically and your payments are reported to a credit bureau so you build up your score. At the end of the loan period, you even have some savings put away in an account. 

Rent Reporting

Typically, in Canada landlords don’t report rent payments to Canada’s credit bureaus so your payments don’t go towards boosting your score. By using Borrowell Rent Advantage^™, however, renters can now use their monthly rental payments to build up their credit, and no landlord participation is required. Renters can sign up easily on the Borrowell website and then simply connect the bank account from which they make rent payments.

Plus, you can add up to 2 years of past rent payments to your credit report in one go, extending your credit score!

The Bottom Line

There’s no denying that a low credit score can make renting in Ontario more challenging, but there are solutions. Along with working diligently to improve your credit score by doing things like reducing your debts and paying your creditors on time, you can also find ways to show prospective landlords that you’d make a great tenant.

Providing strong references and proof of employment, as well as demonstrating that you’ve got savings, are all elements that can help tip the balance in your favour. Getting a close friend or family member to co-sign the lease may also be a solution if other options fail. As long as you continue to improve your credit score and prioritize better management of your personal finances, you’ll eventually succeed in putting yourself at the top of a landlord’s most-wanted-tenants list.