Rent Payments Now Affect Your Credit Score in Canada

Timely payments toward your loans, credit cards, lines of credit, and mortgages are crucial for your credit score, a simple three-digit number that influences loan approvals.

Historically, one of the largest expenses for Canadians, rent, didn't contribute to building a credit score. However, this has changed in recent years with the emergence of rent reporting tools and services.

Landlords and property managers can now use platforms like FrontLobby to report tenants' rent payment history—with their consent—to credit bureaus such as Equifax and the Landlord Credit Bureau. This applies to payments made via cash, cheque, direct deposit, or credit card.

For property managers or landlords who do not already subscribe to FrontLobby, there is a tenant version of the service available for $4 a month or $48 a year. Renters can invite their landlords to join and report their rent payments to help build a credit history.

According to FrontLobby's website, tenants have reported credit score improvements ranging from 36 to 84 points within the first six months of using the rent reporting tool.

Experts recommend considering rent-reporting services, as well as certain cashback offers when using a credit card to pay rent, as long as the benefits outweigh the costs. Financial services company Borrowell provides a self-reporting option to Equifax for $8 a month for tenants who connect their bank account and provide rent details.

Another company, Chexy, charges a 1.75 per cent monthly fee for using a Visa or American Express credit card to pay rent, but it offers cashback on those transactions.

However, beware that some credit card companies might treat those rent charges as cash advances, which could result in additional interest charges depending on your credit card.

Last year, Toronto-based fintech KOHO Financial began offering rent reporting through its cash account. Customers who are signed up for tenant insurance can earn 0.25 per cent cashback on rent. Currently, the rent-reporting service is accessible to all customers, but only those paying $19 a month for KOHO's Everything Plan can earn cash back.

If your landlord accepts credit cards, inquire whether any transaction fees will be passed on to you, and verify with your credit card company if rent charges are treated as cash advances that incur immediate interest charges—which can accumulate quickly.

"If your rent is due today, but you're not getting paid for another week, does it make sense to pay that fee just to transfer it to a credit card until you get paid? Then yes, definitely," says Barry Choi, a personal finance expert. He suggests calculating the potential cashback from a credit card, considering any applicable monthly or yearly fees, to determine if these tools are beneficial.

Jason Heath, managing director at Objective Financial Partners in Toronto, advises being strategic when choosing a credit card to use with a rent-reporting service.

"There may be introductory offers with zero per cent balance transfers," he mentions. "When evaluating any credit card incentive, you must also consider the associated costs."

That said, caution is advised when using a credit card to pay rent, as it can lead to a debt trap, ultimately harming your credit score more than improving it. Heath warns that falling behind on credit card payments can result in significant interest rate charges, typically ranging from 19 to 23 per cent.

"The more you charge to your credit card instead of using your bank account," states Heath, "the greater the risk you face at the end of the month if you're unable to pay that balance."