Canada’s housing and rental markets remain red-hot as the country recovers and re-opens from the pandemic. The average rent in Canada has increased by 12.4% compared to a year ago and has hit a new record high of $2,024. As a result, rental markets are becoming pricier and more competitive.
In today’s competitive rental market environment, you want to make sure you stand out from the crowd for potential landlords. There are many ways to make yourself an attractive tenant, including by offering to:
- Pay multiple months of rent upfront
- Share rent payment receipts from previous landlords
- Provide reference letters from previous landlords
One essential way to make yourself an attractive tenant is to have a good credit score. A solid credit score of 660 or above will help you stand out from the competition. With many candidates applying for rentals in today’s hot market, landlords are more likely to favour renters with higher credit scores, as they indicate a more stable financial situation.
In this article, we’ll break down what a credit score is, why landlords check your credit, what credit score you should have when looking for a rental, and what you can do to improve your credit and impress landlords during your apartment search.
What’s Your Credit Score?
Your credit score is a number that shows others how financially responsible you are, based on how you’ve used credit and financial products in the past. Canada’s credit scores range from 300 to 900; the higher your score, the more attractive you are as a potential customer or tenant.
When you apply for a credit card, a loan, or similar financial products, lenders will check your credit score before approving your application. This strategy makes sense; lenders want to ensure they’re lending money to someone likely to pay them back on time and in full.
Many factors make up your credit score, including your history of paying bills on time, your credit utilization rate, and how long you’ve been using credit products. You can request to get your credit score directly from Canada’s credit bureaus (Equifax or TransUnion), or you can use a service like Borrowell to get your credit score for free in less than 3 minutes. In addition, checking your credit score will help you understand how landlords see you when they check your credit.
Why Does Your Credit Score for Renting in Canada Matter?
Speaking of which, why do landlords check potential tenants’ credit scores anyway? Well, it’s very similar to why banks and other lenders check credit when you apply for a credit card. Landlords are looking for tenants who will pay rent on time and respect the property. Although you can provide landlords with previous rent receipts and reference letters, your credit score is another measure that landlords can look at to evaluate how likely you are to pay rent on time.
Sharing your credit information with a landlord may sound daunting, but it’s a common request, especially in today’s competitive market. In Canada, it’s completely legal for landlords to conduct credit checks on potential tenants. They can only perform credit checks with your explicit written consent. This is because when a landlord or other company checks your credit, it appears as a hard credit inquiry on your credit report and can temporarily impact your credit score. Note that checking your own credit score with Borrowell, Equifax, TransUnion, or a similar service does not impact your score.
If a landlord wants to check your credit, they need to be transparent about it. Many landlords will provide a separate document that, when signed, authorizes them to perform a credit check. Sometimes, landlords include this request form as part of your rental application or rental agreement. As a rule of thumb, always read the fine print and know exactly what you’re signing.
When landlords receive your consent for a credit check, they’ll request a copy of your credit report from Equifax or TransUnion. In addition, some landlords use third-party services that specifically let them run tenant background and credit checks.
What is the Minimum Credit Score for Renting an Apartment?
Landlords don’t have specific credit score requirements that they share, so it’s hard to state what credit score you need to rent. That said, we recommend having a credit score of 640 or above, as this range consists of fair, good, or excellent scores. Credit scores in Canada typically fall into five ranges, from poor to excellent. Here’s a breakdown:
- Poor: 360 – 580
- Below Average: 580 – 640
- Fair: 640 – 700
- Good: 700 – 750
- Excellent: 750 – 850
In 2021, the average credit score of over 1 million Borrowell members was roughly 660. If your credit score is 660 or higher, landlords will see you as a trustworthy tenant. However, if your credit score is below 660, there are steps you can take to make yourself a more attractive candidate.
When landlords check your credit, you should know they’re not necessarily just looking at your score. They’re also looking at specific information listed on your credit report. Landlords can find critical pieces of financial information from your credit report, including:
- Your payment history for current credit accounts you have open and whether you’ve had any late payments reported against you
- Whether you have any outstanding debt, such as loan or credit balances
- Your debt to income ratio; landlords generally like to see that you earn 3 or 4 times as much as the rent price
- Whether you have any accounts in collections
- Any public records, including bankruptcies and consumer proposals
Because of this, it’s essential to be familiar with your credit score and credit report. Your credit score is like your final financial grade, while your credit report is more like a detailed report card. Services like Borrowell give you access to your credit score and credit report. Reviewing your credit score and credit report will give you a complete picture of how landlords view you as a potential tenant.
How Can you Improve Your Credit for Finding a Rental?
If you feel your credit score isn’t high enough to impress landlords, you should take action as soon as possible. While improving your credit score usually takes time, there are some steps you can take in the short term to improve your credit score. Here are a few recommendations:
Avoid Hard Credit Checks Before Apartment Hunting
As mentioned, your credit score can temporarily decrease when lenders and other companies run hard credit checks on you. So if you’re about to start your apartment hunt, you should avoid authorizing a hard credit check elsewhere.
Taking out a loan, getting a new credit card, or buying a car all require hard credit checks, so you shouldn’t shop around for these things and apartment hunt simultaneously. Instead, put these plans on pause and only allow credit checks from potential landlords so your credit score doesn’t take a nosedive.
Lower Your Credit Utilization Rate
Your credit utilization rate is how much credit you use out of the total credit limit. For example, if your credit card balance is $500 and your credit limit is $1,000, your credit utilization rate is 50%. Therefore, your credit utilization rate is one of the most significant factors impacting your credit score. Keep your credit utilization rate at 30% or under to maximize your credit score.
If you have a large balance on your credit card, you should try paying it down before applying for rentals. The closer you get to a 30% credit utilization rate, the better. Even if you can’t get that low, paying off even a little bit of your balance can help you boost your score a few points quickly.
Dispute Errors on Your Credit Report
You should check your credit report regularly to ensure there are no mistakes. For example, you might find that one of your lenders mistakenly reported a late payment or that bankruptcy has been filed under your name. If you spot something strange, you can contact Equifax and TransUnion and file a dispute to remove errors from your credit report. Depending on the nature of the inaccuracy, removing it may cause your score to go up.
Don’t Close any Credit Accounts Right Before Applying for a Rental
You may think that closing old credit accounts or altogether paying off certain loans can help you boost your credit score quickly, but this will have the opposite effect. Closing out these accounts may cause a dip in your credit score, especially if they are older accounts. Wait until after successfully getting your apartment before paying off your loans.
You should now understand why landlords check your credit and what shape your credit score must be in when apartment hunting. If you’ve found your credit score lacking, the steps above will help you improve your credit score and stand out from the competition in a scorching rental market.
Can You Still Rent with a Low Credit Score
While a low credit score will undoubtedly make finding an apartment harder, qualifying for a rental with a low credit score is still possible. If you have a score that is below 620, you’ll experience difficulty securing a rental. In this case, focus your search on smaller landlords who will take the time to meet you in person. Be prepared to explain the reason for your low score, and make sure to be honest since this is the beginning of your relationship with your landlord, and you want to get started on the right foot.
