Ottawa’s plan to count rent payments toward credit scores needs safeguards, tenant advocates say

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The federal government’s move to have rent payments count toward credit scores could help millions of Canadians build a stronger credit history, but tenant advocates say the plan needs safeguards to protect vulnerable and low-income renters.

The credit score announcement came late last month as part of multiple renter-focused initiatives planned for the 2024 budget, including a $15-million tenant protection fund and a renters’ bill of rights.

To date, there have been no details from Ottawa about how such a credit reporting system would work. The office of Finance Minister Chrystia Freeland did not respond to questions about whether more information is coming in this week’s budget, or how it would address the challenges of establishing credit reporting for rent.

Equifax, one of the country’s main credit bureaus, said normalizing credit reporting for rent could help millions of non-home-owning Canadians start building and improving their credit score. That’s key because it would allow them to access cheaper and larger forms of credit, such as credit cards with higher limits, lines of credit with lower interest rates, and better rates on mortgages.

Rent has historically not been counted toward credit reports, but Sue Hutchison, president and CEO of Equifax, said it’s one of the largest regular payments that most Canadians make on time each month.

Newcomers and young Canadians stand to benefit the most from the proposed changes, because it would allow them to build up their limited credit profiles, she said.

“We’re finding that an additional four to five million Canadians and new Canadians can either establish or build a credit score, so I would generally say this is really positive,” said Ms. Hutchison, who added that there was roughly a 20-per-cent increase in the number of renter households between the 2011 and 2021 censuses, from 4.1 million to five million units being rented.

“We need to modernize credit information in this country and use credit information we don’t typically use. If you think of a young person, they’re not buying cars like I did. ... Same thing around mortgages, they’re buying less homes. So, we need to keep up with the changing demographic.”

However, Ms. Hutchison noted that the premise is more challenging than established forms of credit reporting for mortgage and debt repayments. That’s because there are only hundreds of mortgage or credit card providers, but hundreds of thousands of landlords, the majority of whom are small landlords with fewer than three rental units. Verifying credit reporting from so many landlords presents more challenges.

Ms. Hutchison noted that mortgage payments didn’t count toward credit scores about 15 years ago, and said it took roughly five years to normalize those payments into credit scores. Doing the same for rent could be more complex.

Some renters already have their payments count toward their credit score through companies such as FrontLobby, which allows landlords and tenants to opt-in to their program and have rent payment details sent to Equifax. Roughly 35,000 housing providers and one million units across Canada use the service, representing roughly 20 per cent of renter households.

Philippa Geddie, a supervising lawyer with the housing and income division of Downtown Legal Services at the University of Toronto, said there are large risks to low-income tenants and people who don’t understand their rights if credit reporting becomes a standard procedure, rather than an option for renters.

For example, she said landlords could make bad-faith reports if they disagree with a tenant on the cost of repairing damage, or threaten to hurt a tenant’s credit score if they break a one-year lease.

“For low-income tenants forced into mandatory reporting, the possibility of a credit hit could be devastating,” said Ms. Geddie.

“They may lack the information or representation to challenge a bad-faith claim on the part of their landlord. Even if the arrears reported are real, the credit blow could affect their employability and their ability to obtain new housing, increasing the likelihood of being forced out with nowhere to go.”

International students in particular sometimes sign onto fixed-term leases but arrive to realize the unit is in disrepair. When they try to leave, landlords could threaten to ding their credit score for missing owed payments, she said.

Douglas Kwan, director of advocacy and legal services at the Advocacy Centre for Tenants Ontario, said this group is aware of many tenants whose rights have been infringed. “They don’t know their rights or are too scared to assert their rights because ... they fear repercussions from their landlord.”

He also said that if the system relies on landlords reporting rent paid, there would need to be some sort of incentive pushing them to actually do so.

“Many landlord-tenant relations are not necessarily recorded anywhere. The renters could be paying cash to their landlord and the landlord may not be reporting it as income,” said Mr. Kwan.

However, he said he expected the overall impact of rental credit reporting would be marginally positive for tenants.

Zac Killam, co-founder of FrontLobby, argued that normalizing credit scores for rent payments wouldn’t come with higher risks to tenants because landlords can already make credit report claims against tenants who owe rent.

He says his platform already involves a verification process and there have only been a handful of attempts by landlords to misuse it, and those users are immediately terminated.

Mishaps more commonly happen because of reporting errors, but he says renters have 45 days to dispute a claim before it appears on their credit report.

Experts also noted that a major challenge would be working with provinces to normalize credit reporting, since it falls under provincial jurisdiction.

“It’s not a policy yet. Nothing is actually going to happen based on what Prime Minister Justin Trudeau said, but what it does signal is they understand this would be quite positive for folks who are renting,” said Ms. Hutchison.