Eight years after Canadians became able to use their mortgage payments to build their credit rating, a similar option now exists for renters.
Toronto’s Landlord Credit Bureau, which is used by 30,000 landlords and property managers in Canada and the United States, is partnering with Equifax Inc. to create an online portal that tracks a tenant’s rent payments so that the resulting data can be integrated into the credit of the files. Renters or landlords, who are responsible for updating their tenant profiles on a monthly basis with on-time or missed payments, can register to use the service.
The Landlord Credit Bureau will be responsible for managing the portal, collecting the data and sending it to Equifax. Rent would then be treated the same as credit cards on credit reports – a new business line would be created and on-time or missed payments would begin to weigh on credit scores.
Zachary Killam, CEO of the Landlord Credit Bureau, said the contribution of rent payments to credit reports and credit scores could greatly benefit two groups of Canadians who have traditionally struggled to establish their creditworthiness.
“I remember when I first went to college and all I could get was a $ 300 credit card, which didn’t go far,” Killam said. “New customers and new customers (consumers) have poor credit records and they are struggling to build their credit rating, so we see this as an opportunity to build up their credit records with a large monthly payment. ”
The Landlord Credit Bureau portal is also intended to help homeowners. When considering a potential tenant, they would be able to extract payment data from that tenant, with their permission, and determine if there has been a history of delinquency.
While landlords can currently pull credit records with the consent of a rental applicant, many still rely on credentials that may be brighter than realistic, Killam said.
About 33 percent of Canadians pay rent and that bill is probably their biggest expense, Killam said, so it makes sense that those payments contribute to a credit report. The logic may seem simple, Killam said, but it’s a little more complicated why the credit bureaus didn’t introduce this sooner.
Equifax Inc.’s director of consumer advocacy, Julie Kuzmic, said there are systematic limitations that make it difficult to integrate rent payments. Lenders and service providers who report to credit bureaus need a certain volume of data to do so and they weren’t getting it. Meanwhile, homeowners would likely not be able to “manage the overhead costs required to send data to credit bureaus on a monthly basis.”
A third was always going to be needed, Killam said. U.S. credit bureaus that include rent on credit reports also work with an organization like the Landlord Credit Bureau, he said. Without one, the biggest credit bureaus would be responsible for everything from checking out homeowners to resolving disputes.
“The offices just didn’t want to deal with all of the headaches and difficulties associated with managing landlords and tenants,” Killam said.
Going forward, the new initiative could particularly help young Canadians qualify for mortgages, Kuzmic said, but there are limits.
On the one hand, having rent payments on file does not replace the need to have credit card payments contributing to a score. Canadians who are suspicious of credit cards and only use them sparingly for the need to build a record or score cannot rely exclusively on paying their rent.
And that may not influence all credit scores, she cautions. Each Canadian has several credit scores accessible by different lenders. According to Killam, banks access one that consumers can’t, for example, while Equifax, Fico and others may calculate their scores differently. There are still some, Kuzmic said, that do not include mortgage payments. She expects the same to happen with rent payments – they will be assimilated in some scores but not in others. But even if it doesn’t affect a particular score, having another trade line on file should automatically be more beneficial.
Copyright Postmedia Network Inc., 2020