Canada’s tenants will soon be able to have their monthly rent payments included in their credit histories.
Fintech company Borrowell Inc. announced on Tuesday it will begin reporting rent payment information to Equifax Canada, one of the country’s two main credit bureaus, before the end of July. The service, called Borrowell Rent Advantage, will be available to those who have a user account with the company for a $5 monthly fee.
“As a renter, you don’t get credit for making those payments on time because the credit bureaus aren’t able to see them,” said Andrew Graham, chief executive and co-founder of Borrowell, which offers Canadians free Equifax credit-score checks and matches them with loans and credit products for which they may qualify. “For the first time in Canada, we’re allowing renters to sort of solve that problem by building a credit history with their rental payments.”
The announcement comes at a time when fast-climbing mortgage rates are forcing a growing number of young adults to shelve their home buying plans even as they face soaring rents as tenants.
Canadians who rent their homes are often paying more than those who are paying for a mortgage on a monthly basis, said Julie Kuzmic, senior compliance officer for consumer advocacy at Equifax Canada. “We want to be able to add that information to their credit report to paint a more accurate picture.”
A history of making payments on time and in full typically helps consumers build a good credit score, which estimates the likelihood that a borrower will repay their creditors. But credit scores have traditionally relied on debt- rather than bill-payment data. This meant that while homeowners would be able to build up their credit history with their mortgage payments, a tenant’s record of paying rent by the due date usually wouldn’t count.
While third-party providers have been providing rent-paying data to credit bureaus in the United States for years, Canada has lagged behind.
Some landlords in Canada submit rent-payment information to credit bureaus, but Borrowell’s new service will be the first to allow tenants to self-report their rent payments, according to Ms. Kuzmic.
Reporting rent payments to credit bureaus can help Canadians who don’t own a home improve their credit score, with the potential to eventually allow them to access more competitive mortgage rates when they’re ready to buy, Mr. Graham said.
It’s unclear, though, to which extent the Borrowell subscription would also benefit lower-income renters.
Households with low or moderate income in Canada are more likely to rent and to have poorer credit scores or no credit history. A recent survey conducted by Borrowell and answered by 2,873 respondents with below-average credit scores of under 660, found that 68 per cent were renters. By comparison, around 30 per cent of households in the country rent, according to Statistics Canada.
Lower-income renters often have to resort to high-cost debt, borrowing from entities such as payday lenders that don’t necessarily report payment data to credit bureaus, said Brenda Spotton Visano, a professor in economics and public policy at York University.
The ability to establish a credit history with rent payments could help low-income tenants in ways that go beyond the opportunity to access credit products such as credit cards and auto loans and to do so at lower interest rates, Ms. Kuzmic said. For example, a good credit score could help them qualify for a new lease or improve their employment prospects, since many landlords and employers demand credit checks when vetting rental or job applicants.
But Borrowell’s $5 monthly fee for its rent-reporting product is likely to be a financial barrier for low-income households, Prof. Spotton Visano said.
Mr. Graham, for his part, argues Borrowell will be providing a key service. While banks and other lenders supply information about mortgage payments, it’s been harder to receive reliable data from the myriad larger and small landlords that collect rental payments.
Borrowell will gather and verify the information from renters who sign up for the new offering and connect the bank account from which they pay the landlord. Tenants must indicate which monthly transaction is their rent payment.
Borrowell currently counts more than two million users across Canada. Of these more than two-thirds don’t have a mortgage on their credit profile and are likely renters, the company said.
Like all other Borrowell users, those who enroll in Rent Advantage will receive marketing e-mails about financial products such as loans and credit cards, although they may opt out.
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