A lower credit score can impact your ability to borrow money and prevent you from getting the best rates on mortgages and car loans.COLE BURSTON/The Canadian Press
A growing number of Canadians are renters. According to one study of census data, the number of renters grew at twice the pace of homeowners between 2016 and 2021, and 33 per cent of all households in the country are now comprised of renters.
But there’s one unexpected challenge that this growing cohort of renters face: a harder path to improving their credit score.
Renters tend to have credit scores roughly 40 points lower than homeowners, says Rebecca Oakes, Equifax Canada’s vice-president of advanced analytics.
A lower credit score can impact a person’s ability to borrow money and prevent them from getting the best rates on mortgages and car loans. It can also prompt auto insurers to charge you more.
Here’s how it works: A credit score is a three-digit number, typically between 300 and 850, that indicates your likelihood of paying back debt on time. It tracks whether you’ve missed payments in the past, and how much credit you’ve used throughout your life. Equifax says reporting models vary, but scores from 660 to 724 are generally considered good; 725 to 759 are considered very good; and 760 and up are considered excellent
However, the official label of “good” might not be good enough. Some lenders won’t even offer you a mortgage if your credit score isn’t at least 680.
A study by SingleKey, a rental services company, found that the average renter’s credit score is 694, which is barely above that threshold.
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Ms. Oakes says there are multiple reasons for this. First, over half of renters fall in the bottom 40 per cent of income earners in Canada, making them more likely to have a lower credit score. Many renters are also younger and have had less time to build up a good credit history.
But there’s another advantage that homeowners have: Mortgage payments count toward a credit score, while rental payments don’t.
“That’s one of the reasons why we’re trying to change the industry to include more financial information,“ said Ms. Oakes. “If we have that info then we can develop new scores that take that into account.”
In fact, mortgage payments are a relatively new factor for credit scores. Ms. Oakes said they’ve only been included since 2012.
There are some existing ways for renters to have their payments on their credit report.
Renters can also use companies such as FrontLobby, which allow renters and landlords both to opt in to credit reporting for rent payments. Roughly one million rental units across Canada used the service as of 2024, representing roughly 20 per cent of renter households.
However, a system that works across the board will be more complicated to address. The federal government committed to formalizing credit reporting for rent payments in the 2024 budget under then prime minister Justin Trudeau, but there hasn’t been much said on the issue since then.
Rental advocates have said that a standardized system of having rent payments included in a credit report will need to have protections for renters from landlords who could make faulty claims in bad faith.
Here’s some tips on how to make sure your credit score stays competitive, and what you can do to raise it.
Do you think rent payments should automatically count toward your credit score? Do you already use a service to report your payments? E-mail me at sfarooqui@globeandmail.com with your thoughts.
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