Why Do Landlords Check Credit?

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If you’re in the market for a new apartment, you might notice that many listings include a statement like “must pass a credit check” or “subject to a credit check.” But what does this mean? What can a landlord tell from your credit report?

Your credit report shows landlords your credit score and financial history. Landlords check your credit to evaluate your likelihood to pay rent on time. They also check whether you owe rent to any previous landlords. 

Landlords can find key pieces of financial information from your credit report, including: 

• Your creditworthiness, based on your credit score

• Your payment history, and whether you’re likely to miss bill payments 

• Whether you have any outstanding loans, credit cards, or other debts

• Whether you have any accounts in collections

• Any public records, including bankruptcies and consumer proposals

The idea of sharing this much financial information with a landlord can sound pretty daunting! However, it’s a common request and one you will need to accommodate time and time again, whether you’re looking for a new apartment or a new car. 

Before you hand your credit report over to just anyone, it’s important to be aware of what your landlord is looking for and how to prepare your credit report to win over a potential landlord, especially if you have poor credit.

Are landlords allowed to ask for credit checks in Canada?

Yes, it’s perfectly legal for landlords to perform credit checks on prospective renters. However, landlords can only perform credit checks with your written consent. Here’s why.

When a landlord performs a credit check, it’s considered a hard credit inquiry. Hard credit inquiries will appear on your credit report and could affect your credit score. 

Landlords should be up-front with their requests to perform a credit check. Many landlords will provide a separate document for you to sign. When you sign this document, the landlord is authorized to perform a credit check. 

Sometimes, landlords include the authorization request as part of your rental application or rental agreement. Always read the fine print so you’re aware of exactly what you’re signing.

How do I get my credit report for my landlord?

In most cases, a landlord will request your consent to perform a credit check. They will then request a copy of your credit report from one of Canada’s credit bureaus, either Equifax or TransUnion. Sometimes, a landlord will use third-party services to perform tenant background and credit checks.

In some instances, you may be able to avoid a hard credit pull by providing your landlord with a copy of your credit report. 

Some landlords may prefer to run a credit check independently, but it’s still worth offering to provide one just in case they are open to it. In the end, it will save them time and it will protect your credit score from being dinged.

Use Borrowell to access a free copy of your credit report to send to your landlord. This verified credit report is generated in partnership with Equifax and won’t affect your credit score.

What if I have bad credit or no credit?

A good credit score will help you secure a rental. Getting approved for a rental when you have no credit or poor credit can be a challenge, but it’s not impossible. You may just need to take a few extra steps to prove your financial reputation. Taking extras can help you assure your prospective landlord that you are trustworthy and capable of paying your rent on time.

The first thing to do is read and review your credit report. This way, you’ll know your credit score and you will know exactly what information your landlord is going to find on your credit report.

Reviewing your credit report and understanding the information on it can help you prepare for any objections from your potential landlord.

The following are some ways to secure a rental, even when you have poor credit:

• Provide proof of income in the form of pay stubs or bank statements

• Provide character references from employers or landlords

• Have someone with a solid credit score cosign your rental agreement

• Appeal to a landlord’s human side by explaining your situation and what you’re doing to improve your credit score 

If you have no credit, landlords may be skeptical. They may be wary that you have no payment history to demonstrate your trustworthiness. You may be able to alleviate their concerns by providing bank statements or pay stubs to demonstrate strong finances. 

If you have a bad credit score, the landlord may be hesitant to rent to you because you’ve struggled to make payments on time in the past. If possible, try to demonstrate the steps you’ve been taking to overcome any missteps in your credit history. Work to emphasize the positive aspects of your credit history and use bank statements to prove your financial solvency. 

Don’t be afraid to plead your case to your landlord. Even if you’ve had some derogatory items on your credit report, your landlord may be able to understand and empathize. Good tenants are hard to find, so if you can provide excellent references and demonstrate a steady employment history, your landlord may be willing to overlook a low credit score. 

How can I prepare my credit for my rental application?

Chances are high that a future landlord will run a credit check before approving your rental application. Because of this, it’s important to get your credit score in tip-top shape before that happens. 

While improving your credit score typically takes time, there are a few things you may be able to do to boost it in the short-term. 

Avoid authorizing any hard credit pulls before applying for a rental

Hard credit inquiries, such as the one your landlord will run, affect your credit score. So, if you know you’re about to authorize a credit check for a rental, avoid having any other hard inquiries made immediately prior. 

If you are planning to take out a loan, open a credit card account, or purchase a vehicle, try spacing out these applications so that your credit score doesn’t take a nosedive. 

Lower your credit utilization

If you tend to carry a balance on your credit card, try to pay it down before applying for a rental. This will lower your credit utilization, which accounts for 30% of your credit score. 

It is recommended that you never use more than 30% of your credit at any given time, so the closer you can get to this percentage the better. Even if you can’t get that low, paying off even a little bit of your balance is likely to boost your score a few points almost immediately. 

Dispute errors on your credit report

You should be checking your credit report regularly to ensure there are no mistakes. If you happen to spot something strange, file a dispute to have errors removed from your credit report. Depending on the nature of the inaccuracy, removing it may cause your score to go up. 

The Bottom Line

Landlords use credit checks to evaluate whether a tenant will be capable of paying rent on time, but this is not the only metric that matters to them. Don’t let a low credit score or a limited credit history stop you from pursuing a rental. You can use the advice above to help set yourself and your credit score up for success when you enter the rental market.