A federal proposal to include rental payments in calculating credit scores might help some Canadians move into home ownership, but it could have consequences on renters who are already struggling with rising costs.
One measure of the proposed Canadian Renters’ Bill of Rights, announced last week by Prime Minister Justin Trudeau, would use timely rental payments to calculate a person’s credit score. This, it said, would help level the playing field for young renters, particularly those who want to eventually buy a home.
“Renters deserve credit for the money they put toward rent over the years, especially when it comes time to apply for a mortgage for their first home,” the announcement said.
Trudeau said there was something fundamentally unfair about paying $2,000 a month in rent while those paying the same for a mortgage get equity and can build their credit score.
An amendment to the Canadian Mortgage Charter would urge landlords, banks, credit bureaus and fintech companies to include rental reporting in a credit score.
Reaction to the federal proposal — which would require the co-operation of provinces — was mixed.
Those in favour agree it would help aspiring homeowners build the financial credibility needed to qualify for a mortgage or help them secure a lower borrowing rate.
Critics, however, said the measure doesn’t address the key issues of insufficient housing supply and affordability, but it could hurt the credit scores of people who are struggling to pay their rent on time.
Move would benefit aspiring homeowners
“Frankly, for the last decade or so, there’s become a great divide in this country between homeowners and renters, and a lot of renters have felt left behind,” said Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates Inc.
The proposed measure is an important step for renters whose monthly housing payments are likely their biggest expense, he said. A strong record of punctual rent payments would lend credibility to those who want to jump into the housing market.
If “all of a sudden you’ve got 12, 24 [or] 36 months behind you in making rent payments, it’s going to make a big difference to your credit score and to your ability to borrow down the road,” said Terrio.
Prime Minister Justin Trudeau tells CBC’s The Early Edition about new housing measures he says are intended to help renters, particularly young people in the country, to qualify for a mortgage and eventually buy a home.
Higher credit scores may be moot given a housing market in which demand far outweighs supply. The cost of rental units also continues to soar, with vacancy rates reaching a new low of 1.5 per cent in 2023 — the lowest rate on record since the CMHC began tracking that data in 1988. The demand is in part fuelled by Canada’s growing population rate.
“This is not going to fix the supply issue,” Terrio said, noting that it might compel even more people to enter the housing market, “but it’s going to make things more fair between renters and homeowners.”
A need to address affordability, supply issues
While the measure would be “tremendously helpful” for renters on the cusp of qualifying for a mortgage, the current reality is that many young Canadians believe home ownership is out of reach, said Nemoy Lewis, an assistant professor in the School of Urban and Regional Planning at Toronto Metropolitan University.
“A lot of young people just feel like they’re not saving, they can’t save or they’re not making enough money in order to save for the necessary down payment that’s required,” he said.
In Halifax’s tight housing market some landlords have implemented ‘no kids’ policies, leaving parents struggling to find a place to live and no recourse to get the rule overturned.
An RBC report published earlier this month said that more than two-thirds, or 68 per cent, of Canadian households can’t afford to buy a home on earned income alone.
Chrystal Tagmann, a 47-year-old teacher in Vancouver living on a sole income, has lived for the last decade in an apartment in a purpose-built rental building. Though she’s been saving for years to get into the market, her salary has never quite been high enough, she said.
“While I aspire to own, I actually would be fine renting — provided that there’s that room to be able to invest, thinking ahead to retirement,” Tagmann said.
Rent reporting won’t substantially change the situation for Tagmann, who said she already has an excellent credit score.
“I think fundamentally what renters need are seismic changes to the housing situation in Canada,” she said.
Rent reporting exists on small scale
Rent reporting already exists in Canada, albeit on a small scale: companies like FrontLobby, which works with the Landlord Credit Bureau (a credit agency that operates in five provinces) and with Equifax Canada, collect rental history data.
Tenants can opt-in to have their rental payment history count toward their credit score.
FrontLobby CEO Zac Killam told CBC News that “widespread awareness and adoption” has been missing from the rent reporting landscape, with the government’s announcement being a step in that direction.
“The benefits of rent reporting and having rent included on an individual’s credit report is that it can result in that individual actually being scorable — meaning they can actually get a credit score if they have no credit history or a thin credit history,” he said.
He said it’s also helpful to landlords who can use rental reporting to screen potential tenants, and give some tenants incentive to pay rent on time.
Equifax Canada estimated in a 2022 report that more than three million people over 18 in Canada were “credit invisible” — that is, they either had no credit score or had insufficient data to generate a credit score. An additional seven million people have a limited credit history, it added.
A Trans Union report from the same year says that roughly nine million people in Canada are credit “unserved or underserved,” meaning that they don’t own a credit card or another product from which they can build credit.
Cost of Living4:46Credit 101 — can be a hard lesson for new Canadians
If you’ve never had a credit card or a credit score, good luck getting a mortgage, a car loan, or even shopping online. Producer Ellis Choe finds it can be a daunting and expensive hurdle especially for new Canadians.
Both of Canada’s official credit bureaus told CBC News that they welcomed the new government initiative.
Trans Union 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,” a spokesperson told CBC News.
Equifax Canada looks 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,” said CEO and president Sue Hutchison.
What could go wrong
The flip side of the proposal is that if one’s timely rental payments can count toward their credit score, people who fail to make rent on time could see their credit scores negatively impacted by this measure.
Killam noted that a payment late by a few days or a week wouldn’t be reported by Equifax. “It would have to be quite substantially late before it would be reflected,” he said.
But the scenario is a reality faced by a growing number of Canadians.
According to a January 2024 report by the Canadian Mortgage and Housing Corporation, rental arrears — or overdue payments — rose in several major cities last year, with purpose-built rentals in arrears rising from a national average of 6.5 per cent in 2022 to 7.8 per cent in 2023.
“Lower-income renters face the additional challenge of especially low supply and low vacancy rates for the most affordable units in Canada’s major markets,” the report read. It also noted that strong demand for rental units was in part driven by the low affordability of home ownership.
Dale Whitmore, the director of policy and law reform at the Canadian Centre for Housing Rights, said the proposal could be helpful in cases where renters have been able to pay their rent on time.
“But we’re in a housing crisis, and more and more people, through no fault of their own, are struggling to pay their rent on time,” he said.
“Our worry is that the reverse of what they’re saying could also be the case. If somebody hasn’t always been able to pay their rent on time, that could be counted against them. And that could be really harmful.”