There are many reasons why a person might not have a good credit score, or any kind of existing credit history at all.
But if you’re trying to get a loan or even a credit card, without a credit history, things can get complicated. Often, you run into a frustrating Catch-22: you can’t get credit because you don’t have a credit history, and you can’t build a credit history without credit.
And if you do manage to get credit, it usually comes with much more costly interest rates.
There’s a solution that not many Canadians know about to help build your credit rating without borrowing, or spending more than you already are – and it’s one that’s becoming more easily accessible
It allows Canadian renters to build credit in a similar fashion that homeowners build their credit with their mortgage payments.
It’s called rent reporting.
For young people, newcomers to Canada, or individuals who have had bad credit in the past, it’s a great way to build good credit by recentering rental payments as a cornerstone of your credit history.
Rent reporting agencies in Canada
In Canada, there are a couple of agencies that work with credit bureaus.
The first is FrontLobby, which submits reports to the Landlord Credit Bureau (LCB) and Equifax. The second is Borrowell.
Landlords, FrontLobby, and increasing revenue
Landlords give FrontLobby tenant details and monthly rent payment information, such as how much residents pay, whether the payments are timely or late, etc.
The credit reporting agency compares and verifies this information by cross-checking it with information submitted by the tenant. FrontLobby then presents this information to their credit bureau partner and to Equifax, creates tenant reports, and documents payment history.
FrontLobby also gives landlords access to their recordkeeping platform, rental application templates and clauses. These specific services are free. But FrontLobby makes its money by charging a fee that allows landlords access to credit reports and tenant records of prospective applicants.
This also means that when landlords need to fill a vacancy, they can root out bad tenants with poor tenant records, reduce delinquencies, and increase their revenue.
Tenants, FrontLobby, and building good credit
For tenants, the records created by both LCB and Equifax can be helpful to create a positive rental and credit history.
Whenever they need to apply for a new rental property, a good score makes them more competitive. Simultaneously, timely rent payments slowly increase their credit score, as more and more rents are registered through Equifax.
According to FrontLobby, most tenants raise their credit score rating by 33 to 84 points after being integrated into the rent reporting system.
It’s important to note, however, that FrontLobby also charges tenants to access their tenant report from LCB, and to submit their monthly payments to Equifax to improve their credit report – so FrontLobby actually makes money from both the tenant and the landlord.
If you’re a tenant, it’s also important to know that late payments will appear on your record, and this can significantly impact not just your credit score (and therefore your future ability to get loans and credits) but your rental chances. A bad score could directly make you an unwanted resident for property owners, and even make you a less desirable recipient for a mortgage loan.
Your interactions with your landlord matter – and if they record late or incomplete payments, the report will follow you.
Borrowell, tenants, and rent reporting
Borrowell works similarly to FrontLobby, in that it partners with Equifax to allow Canadian renters to build their credit history.
But unlike FrontLobby, Borrowell’s Rental Advantage program doesn’t take input from landlords.
Instead, it connects directly with your bank account. You tell it which monthly transaction accounts for your rent, and Rental Advantage begins its recordkeeping.
Renters who demonstrate good behaviour are rewarded with improved credit scores, and better access to more competitive financial products and services.
Just like with the other rent reporting service, missed or late payments will result in a poorer credit score.
Rental Advantage also requires a monthly subscription, and users are encouraged to maintain it for as long as possible.
There are fees and risk associated with both services, but they could be of use for some tenants, since longer credit histories result in better scores, and good rental karma can translate into approved loans for those who can prove their credit worthiness.