Cautious optimism for federal plan to let rent count toward credit scores

The plan to make the practice more widespread is encouraging, said Andrew Graham, chief executive of Borrowell.

“We’ve been saying for a couple of years now, how important it is for consumers to be able to report rental payments to build up their credit history, so I was pleased to see the government taking some action.”

Prime Minister Justin Trudeau said Wednesday that there’s something fundamentally unfair about paying $2,000 a month for rent, while those paying the same amount toward a mortgage earn equity in their home and build their credit score.

He said the government wants landlords, banks and credit bureaus to make sure rental history is taken into account on credit scores, giving young first-time buyers a better chance at getting a mortgage, with a lower interest rate.

Equifax Canada chief executive Sue Hutchison said the credit agency, which has already been working to include rent payments, was excited to hear about the government’s announcement.

“We look forward to working with the governments, the banks and other lenders to ensure this important evolution in the credit infrastructure in Canada is implemented responsibly,” she said in a statement. 

Rent reporting, credit bureaus and open banking

Graham said open banking, which will allow consumers to safely share their banking data to third-party financial players like Borrowell, is crucial to the success of the program.

“What we’ve been telling the government and, and frankly, anyone who will listen, is that what we really need is open banking.”

Zac Killam, CEO of FrontLobby, which has been offering rent reporting to credit bureaus since 2018, said he supports any efforts to raise awareness of the benefits.

“The level of awareness is very low, it’s not well understood … particularly for the portion of the population who it benefits the most.”

More than three million adults in Canada don’t have a credit score, estimated Equifax in a 2022 report, while a further seven million have only limited data that the credit agency says could limit their ability to access credit products.

FrontLobby relies on both the renter and landlord verifying payments, so isn’t reliant on an open banking model. A study it conducted with Equifax found that rent payments were the only source of credit score for almost half of users of the service.  

“They’re able to reflect all their years of on-time payments on their credit report, which can have obviously tremendously big benefit to their credit report,” said Killam.

Reporting rental income, however, only helps a credit score if it’s regularly paid on time. With the sharp rising cost of rents, and overall living costs, many are under strain and may not benefit, cautioned Elizabeth Mulholland, chief executive of charity Prosper Canada.

“It’s a double-edged sword.”

She said it’s important people have control over whether they want the data to be shared with credit bureaus.

“If you just blanket build it in, that could be problematic for a lot of low income people and vulnerable people,” said Mulholland.

“You don’t want to set those people further behind. And those challenges go right up the income scale well into the middle class.”

She also said the program should be done in the context of open banking, where there are structures in place to protect both the data, and how it’s used.

Rent reporting could put more pressure on tenants

Landlords enticing tenants to sign on with the promise of improving their credit score is concerning, said Douglas Kwan, director of advocacy and legal services at Advocacy Centre for Tenants Ontario.

As it stands, landlords generally have to proceed to the provincial tribunal to hear disputes and seek a remedy. A reporting system would allow them to further pressure tenants, who may be withholding rent over disputes, with the threat of damaging their credit score. 

“Their bargaining powers is so much stronger than tenants already, and so when you add the these private reporting mechanisms that are run by the landlord … it’s not only problematic, it’s dangerous,” said Kwan. 

Landlords can already have unpaid rent go toward a credit score by having the debt go to collections, said Killam. He also noted that reporting to credit bureaus through FrontLobby would only take effect if rent is more than 30 days late, not just a few days behind. 

Borrowell doesn’t rely on landlord involvement, something Graham said is important because lots of small landlords don’t have the capacity to participate. Killam however raised concerns on how the credit agencies will actually verify where e-transfer payments are going. 

More details to come in 2024 federal budget

It’s not yet clear on how the government plan will look in practice, with more details expected in the upcoming budget. 

The government has said it plans to amend the Canadian Mortgage Charter and call on landlords, banks, credit bureaus, and fintech companies to make sure that rental history is taken into account in credit scores. 

The Canadian Bankers Association said in a statement that it works collaboratively with government to explore new ways to serve Canadians and will assess the impact of the new policy as details are revealed.

A TransUnion Canada spokesperson said the agency is “already in the process of assessing rental data to support consumers building their credit profiles and to provide potential lenders with the best, most accurate view of the consumer’s creditworthiness.”

The agency encourages governments to work with the credit reporting industry to evaluate the impact of rental data and how reporting it to companies like TransUnion should be done, the spokesperson said in an email.

More about credit scores:

• Credit scores and credit reports: What newcomers to Canada need to know
• How to build credit history in Canada
• 6 things you didn’t know could be hurting your credit rating
• How to calculate your debt-to-income ratio—and why you should know this number

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