You’ve spent months, if not years, padding your landlord’s nest egg with nothing to show for it outside of a cheap box of chocolates come Christmastime.
Now picture getting a mulligan for those thousands of dollars you’ve doled out in a way that benefits both your current and future financial standing.
That’s the central tenet behind a new Canada-wide venture geared towards propping up young renters, new Canadians and those trying to dig themselves out of a lacklustre credit kerfuffle.
Launched in late July by consumer credit company Borrowell, the Rent Advantage program operates similarly to how homeowners build credit through monthly mortgage payments.
The system works via monthly rent payments that are reported to Equifax, one of Canada’s main credit bureaus. Users pay a $5 monthly subscription fee and provide their name, address, rent amount and tenancy start date. That data is then reported to Equifax, which puts that info into your credit report and ultimately your credit score.
“It’s the chicken-and-the-egg problem: you can’t get access to credit unless you’ve got a credit history, but you can’t get access to credit without a credit history,” Borrowell co-founder and chief operating officer Eva Wong said in a phone interview. “We think that rent will really fill that gap and
Though it’s still early days – the program launched July 19 – Wong said interest and uptick have been strong across the nation.
“I do think that we’ve hit a bit of a nerve because it feels like renters have gotten a bit of a raw deal,” she said. “The people who really need the improvement in their credit score aren’t having their rent payments taken into consideration. I think a lot of people feel like this makes sense and should happen.”
Just how raw of a deal are Vancouver renters getting? Consider this: a rentals.ca report from July suggested rent in Vancouver shot up 37 per cent in the two years spanning 2020 to 2022. The report goes on to suggest that Vancouver has the highest rental costs in Canada.
Payment history on someone’s credit report is the largest factor in determining their credit score and is a salient point considered by lenders to assess a borrower’s credit-worthiness. Those with lower credit scores may be less likely to qualify for credit cards, loans and mortgages at decent rates.
A survey conducted by Borrowell in June answered by nearly 2,900 respondents with credit scores of under 660 found that 68 per cent were renters compared to the Canadian average of 32 per cent of households identifying as renters, according to Statistics Canada. Further data from Borrowell, along
with members’ Equifax credit reports pulled from Jan. 1 to June 30, showed the average credit score for Vancouver renters was 654, while the average homeowner credit score was 762.
“Rent is often the largest expense Canadians have each month. Recording payment history can give lenders a more accurate picture of a consumer so they can better understand the consumer’s credit- worthiness,” said Equifax Canada’s chief data officer Sandy Kyriakatos in a news release.
Which renters are best suited to use the credit-building program?
Wong identified three segments of the population ideally suited for the program: young renters looking to build credit, new Canadians who are establishing credit and others who have had past financial challenges or damaged credit.
Though no cancellation fee is charged for those who opt of the program, Wong suggests users stick with the plan for at least six months in order to bolster their credit scores.
“A lot of people through no fault of their own – they’ve gone through a divorce, job loss or medical situation – have credit that’s not ideal,” Wong said. “In that situation it’s hard to re-build your credit if you can’t qualify for a credit card or a loan at an attractive interest, so that’s a good way to establish
your credit that way through your rent payments.”
The Rent Advantage program works without landlord vetting, so as to bypass situations where large property management firms are involved where renters may not know who their landlord or property manager is.
Though new to Canada, the Rent Advantage model is based on similar programs offered down south.
“There are a number of companies in the U.S. who do this, so there is precedent with the credit bureaus, which was helpful,” Wong said. “We’ve also heard from lenders who we work really closely with that having rental data would be really helpful for them.”
Those interested in the Rent Advantage system can visit Borrowell's website for more info.