How Does Rent Reporting Impact A Tenant's Credit Report in Canada?
Rent Reporting Helps Tenants Build Credit
- FrontLobby
- Published
- Updated May 17, 2024
Table of Contents
A credit report summarizes how promptly an individual pays their bills. Credit reporting agencies assign a credit score ranging from 300 to 850 based on bill payment habits and other factors in handling credit responsibly. A Tenant credit report is essential for Tenant screening, providing detailed information on each prospect’s credit and payment history to help Landlords minimize risk and make informed decisions throughout the application process.
What Contributes to a Credit Score?
Five major factors contribute to a credit score. The most important is payment history, which accounts for 35 percent of the score. One late payment can drop a score by several points, especially if the delinquency is recent.
The second factor is credit utilization, or the amount owed relative to the amount of credit allocated. For example, someone who has credit line limits totaling $30,000 and has used $15,000 will have a 50 percent utilization. A good credit utilization rate is less than 30 percent. Credit utilization is 30 percent of the score.
The third factor is the length of the credit history, based upon the oldest account. This factor accounts for 15 percent of the score. Credit mix, which refers to the diversity of account types, accounts for 10 percent. The number of recently opened accounts and inquiries from creditors accounts for another 10 percent. Someone who has opened many credit accounts recently typically is a greater risk than one who hasn’t.
What is a Tradeline on a Credit Report?
A tradeline is the term credit reporting agencies use to describe each account on the credit report. The tradeline includes information about the lender and the debt. Tradelines are important because they indicate whether the individual is current on the debt and by how much they are behind. They also show whether the debt is maxed out or not. Tradelines that have not been paid on time or that are maxed out reduce the credit score. Those that are paid on time and have low utilization increase the score. Using FrontLobby Landlords can secure a tradeline on a Tenant’s credit report.
Credit report tradelines tend to fall in one of three categories:
Revolving accounts – Revolving tradelines typically include credit cards or other lines of credit, and are labeled “revolving” because such elements as available credit, payment due and balance change as payments and purchases are made over time.
Open accounts – Open account tradelines are any accounts that are payable in full immediately after the buyer receives the merchandise in question. Such accounts are usually more for businesses than individuals.
Loans – Installment loan tradelines may include anything from personal loans and auto loans to student loans and mortgages. Loan accounts typically involve situations where buyers borrow a fixed amount and pay that amount back on pre-set terms.
How Do You Read a Credit Report? And What Should A Landlord Look for?
Landlords first should examine the name and address shown on the credit report to see whether it matches the information on the application. They should also review the tradelines to see how much a Tenant owes and the payment history. Tradelines will have status codes that indicate whether the line has been paid as agreed or had late payments, and if so, how many. A Tenant’s payment history on other bills is generally a good indicator of how well they’ll pay their rent. With FrontLobby, rent will show as a tradeline on a Tenants’ credit report and will serve as evidence a Tenant has consistently paid rent on time. Landlords also should look carefully at any collections, bankruptcies, or other public records when deciding whether to accept a Tenant.
FrontLobby credit reports are explicitly built to serve the rental industry. FrontLobby’s credit reports are the only report to include Tenant Records from Landlord Credit Bureau. A Tenant Record includes payment history and previous Landlord’s contact information.
Is There Such a Thing As a Perfect Credit Score?
Yes, people with 850 scores exist, although they amount to a very small portion of the population. Scores that are 670 and above are considered good. According to Equifax, the average credit score among most in North America is currently at 698.
How Can Rent Be Added As a Tradeline?
Historically, credit reports have not included rent as a tradeline. However, Landlords who use the FrontLobby platform can report rent payments through the platform to the Credit Bureaus. When Landlords report Tenant rent payments using FrontLobby, a tradeline will be reflected on a Tenant’s credit report through agencies such as Equifax.
Designed for Landlords, FrontLobby Tenant screening services provide instant, long-form information on prospective Tenants. This includes Equifax rent reporting, which can help Landlords assess risk and make good decisions well into the future.
Disclaimer
The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.
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