Original Article: https://financialpost.com/personal-finance/rent-payments-build-credit-scores
Landlord Credit Bureau CEO says move could significantly benefit some who have struggled to build credit scores
TORONTO, ON / Financial Post / September 29, 2020
Eight years after Canadians first became able to use their mortgage payments to build their credit scores, a similar option now exists for those who rent.
The Toronto-based Landlord Credit Bureau, which is used by 30,000 landlords and property managers across Canada and the U.S., is partnering with Equifax Inc. to create an online portal that tracks a tenant’s rent payments so that the resulting data can be incorporated into credit files. Either tenants or landlords, who are tasked with updating their tenants’ profiles on a monthly basis with on-time or missed payments, can sign up to use the service.
The Landlord Credit Bureau will be tasked with running the portal, collecting the data and sending it to Equifax. Rent would then be treated in a similar fashion to credit cards on credit files — a new trade line would be created and on-time or missed payments would begin to weigh on credit scores.
Zachary Killam, the CEO of the Landlord Credit Bureau, said the contribution of rent payments to credit files and scores could significantly benefit two groups of Canadians who have traditionally struggled to establish their credit-worthiness.
“I remember when I first went to university and all I could get was a $300 credit card, which didn’t go far,” Killam said. “New-to-credit and new-to-country (consumers) have thin credit files and they struggle to build their credit ratings so we see this as an opportunity to flesh out their credit files with a large monthly payment.”
The Landlord Credit Bureau’s portal also aims to help landlords. When they’re considering a prospective tenant, they would be able to pull that tenant’s payment data, with permission, and determine whether there’s been a history of delinquency.
While landlords can currently pull credit files with the consent of a rental applicant, many still rely on references that can be more glowing that realistic, Killam said.
About 33 per cent of Canadians pay rent and that bill likely represents their largest expense, Killam said, so it only makes sense that those payments should be contributing to a credit file. The logic may sound simple, Killam said, but the reason why credit agencies haven’t introduced this earlier is a bit more complicated.
Equifax Inc. director of consumer advocacy Julie Kuzmic said there are systematic limitations that made incorporating rent payments difficult. Lenders and service providers that report to credit bureaus require a certain amount of data volume to do so and they weren’t getting it. Meanwhile, landlords likely wouldn’t be able to “manage the overhead required to send the data to credit bureaus on a monthly basis.”
A third party was always going to be needed, Killam said. The U.S. credit bureaus that include rent in credit files also work with a body like the Landlord Credit Bureau, he said. Without one, the larger credit bureaus would be responsible for everything from verifying landlords to settling disputes.
“The bureaus simply didn’t want to deal with all the headaches and difficulties associated with the management of landlords and tenants,” Killam said.
Going forward, the new initiative could particularly help younger Canadians qualify for mortgages, Kuzmic said, but there are limitations.
For one, having rent payments on file doesn’t replace the need of having credit card payments contributing to a score. Canadians who are wary of credit cards and only use them sparingly for the necessity of building a file or score can’t rely on rent payments exclusively.
And it may not influence all credit scores, she warns. Each Canadian has multiple credit scores that are accessible by different lenders. According to Killam, the 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 don’t incorporate mortgage payments. She expects the same will occur with rent payments — they’ll be assimilated into some scores but not into others. But even if it doesn’t affect a particular score, having another trade line on file should automatically be more beneficial.