As a renter in Canada, you may be wondering if you can use your rent payments to build your credit score. The short answer is yes, but there are some steps you’ll need to take, first.For starters, rent payments are not reported automatically. For these payments to be used towards building your credit, they must be reported, and you must have a good track record of paying on time.
Additionally, timely rent payments do not replace other factors that build credit such as making all payments on time and paying off existing debts. Nonetheless, on-time payment history can be especially important if you’re new to credit or don’t have experience using it.
If you’re looking for more information about rent payments and how they can affect your credit score, iCash, a leading lender for instant loans in Canada, details everything you need to know. Read on to learn more about using rent payments to build credit, and get closer to making more informed decisions about your finances.
How Do Credit Scores Work in Canada?
Your credit score is a three-digit number, ranging from 300-900, that reflects your creditworthiness and financial health. In Canada, several factors come into play when determining a credit score, most lenders will rely on your credit rating to decide if you’d be financially capable of taking on a loan or a line of credit.
Having a good credit rating with a proven track record of making timely payments, including any owing debts, will show banks and other lenders that you are financially responsible. As a result, you would be offered loans at lower interest rates than someone whose history shows less reliability when it comes to paying back what they owe.Below is a brief breakdown of credit score ranges and how they compare in Canada:
Poor Credit Score: Having a credit score of 559 and under is considered a poor credit score. Roughly 4% of Canada’s population fall within this range.
Fair Credit Score: A credit score between 560-659 is considered fair. Approximately 10% of Canadians have a credit score within this range.
Good Credit Score: A credit score range of 660-724 is considered good. Roughly 15% of the population are considered to have good credit with scores falling within this range.
Very Good Credit Score: Anything ranging between 725-759 is considered a very good credit score in Canada. About 14% of Canadians fall within this range and can be considered to have very good credit.
Excellent Credit Score: A credit score of 760 & over is considered excellent in Canada. Over half of the population (57%) have an excellent credit score.
If you want to check your credit score, you can request a free credit report from credit bureaus such as Equifax to ensure that your score is accurate and up to date.
How Rent Payments Affect Credit Scores
Although rent payments do not directly impact your credit score, paying on time still matters. Since credit scores are a reflection of how well you manage credit, including on-time payments, it makes sense that your rental payments can be factored into the score.
Rent payments impact your credit score in a similar way that other forms of credit do if the payments are reported. Specifically, on-time payments result in positive impacts on your credit score, while late or missed rent payments can hurt your score. For renters who have little or no credit history, paying rent on time can help establish good credit, making it easier to qualify for future loans or credit cards.
How Rent Payments Are Reported
The credit bureaus in Canada that track credit scores are Equifax, TransUnion, and Experian. All companies now include rental payments as a factor in credit scores - but, as mentioned, only if the payments are reported. In other words, if your landlord reports your rental payments, it will be factored into your credit score.
However, keep in mind that not all landlords report rent payments, and those that do may take some time for the credit bureaus to update the information. It’s important to use a credit monitoring service to check your credit score and ensure your rental payments are being reported. Regularly monitoring your report will also help you find any errors, so that you can dispute them as soon as possible.
How to Report Rent Payments to Credit Bureaus
As we’ve learned, reporting your rental payments to credit bureaus can build your credit if you’re consistently making all of the payments on time and in full. Let’s dive deeper into how you can report rent payments, so you can better understand how it affects your credit score in Canada.
1. Ask Your Landlord to Report the Payments
If you’re confident in your ability to pay your rent each month, you can ask your landlord to report the payments. Some landlords automatically report rent payments to credit bureaus, while others may not be aware that it's even an option.
If your landlord does not currently report your rent payments, you can ask if they would be open to doing so. Explain how important it is for your credit score and future financial goals, and provide them with the necessary information to report your payments.
2. Sign Up for a Rent Reporting Service
If your landlord doesn’t report rent payments or isn’t willing to, you still have the option to do so. You can sign up for an online rent reporting service that will verify your rent payment each month and report them to the three major credit bureaus on your behalf. From there, you’ll be one step closer to building credit with your on-time rent payments.
3. Keep A Record of Your Rent Payments
Always keep detailed records of your transactions. This helps you ensure that all of your payments are accurately reported to credit bureaus. You should also keep copies of your lease agreements, rent receipts, and any other relevant documents that prove you pay your rent on time.
Whether you ask your landlord to report your payments or sign up for a rent reporting service, taking the steps to report your rent payments to credit bureaus in Canada can be a valuable way to improve your credit score over time.
Reporting Your Rent Payments: Pros vs. Cons
Although reporting your rent payments to credit bureaus can work to improve your credit score, it’s important to stay informed of both the pros and cons. Below, we’ll highlight a few so you can make the best decision for your financial well-being.
Pros of reporting your rental payments
Improved credit score: Having these payments included in a credit report can showcase a positive payment history, potentially improving your credit score.
Increased creditworthiness: By demonstrating a track record of on-time payments, lenders may view you as a lower risk and more likely to repay your debts.
Verification of payment history: By having your rent payments reported, you can quickly and easily provide verification of your rental history without having to request a letter from your landlord.
Cons of reporting your rental payments
Availability of reporting: There may be some credit bureaus that don’t accept rental payment information to calculate credit scores.
Potential for errors: Reporting your rent payments leaves more room for errors in your credit report. If your payments aren’t reported accurately, it could negatively impact your credit score.
Reporting fees: There may be a cost involved with having your rent payments reported to credit bureaus. Some landlords may charge a fee for the service, and not all credit bureaus will offer it at no charge.
Building Credit Through Rent Payments
Whether you have a good track record of making on-time payments or are looking to build credit through rent payments, follow these best practices first:
Start by creating a household budget to ensure all future rent payments can be managed and accounted for.
Automate your rental payments so that your rent will be paid promptly and in full every month.
Check your credit report regularly and dispute any errors you find.
If you have a history of bad credit or are short on cash, consider a bad credit loan to cover your rent so that it can still be paid on time.
Consider iCash to Build Credit Through On-Time Rent Payments
Working towards building good credit is important and reporting timely rent payments can certainly help. However, if you find yourself in a position where you’re unable to pay your rent on time, an iCash instant loan can help. As a top choice online lender for thousands of Canadians, we can help you pay your rent on time. You can apply online or through the smartphone app and get funded in minutes.