Rental payments in credit scores: Could it backfire?

Critics warn proposal fails to address affordability and could harm struggling renters

Rental payments in credit scores: Could it backfire?

Prime Minister Justin Trudeau’s proposal to include rental payments in calculating credit scores has received mixed reactions from housing experts.

“Renters deserve credit for the money they put toward rent over the years, especially when it comes time to apply for a mortgage for their first home,” the government announcement stated, arguing the measure would “level the playing field” for aspiring homebuyers.

The proposal, which would require provincial cooperation, has received a mixed response.  Supporters believe it could help renters qualify for mortgages or secure lower interest rates.

However, critics argue that it fails to address the core issues of housing affordability and insufficient supply. They also highlight the potential negative consequences for renters struggling to make timely payments.

Credit score risks

While potentially beneficial for renters on the cusp of qualifying for a mortgage, Nemoy Lewis, an urban planning professor at Toronto Metropolitan University, believes many young Canadians already feel priced out of the homeownership market.

“A lot of young people just feel like they’re not saving, they can’t save, or they’re not making enough money in order to save for the necessary down payment that’s required,” Lewis told CBC in an interview.

Read more: Younger Canadians giving up on homebuying aspirations: StatCan

Rising rental arrears

The main criticism centres on the risk of negative credit impacts for renters who struggle to make payments on time.

While Equifax might disregard minor payment delays, a growing number of Canadians face the reality of rental arrears.

“It would have to be quite substantially late before it would be reflected,” FrontLobby CEO Zac Killam said.

Data from the Canadian Mortgage and Housing Corporation showed rental arrears rose in several major cities last year, with the national average for purpose-built rentals climbing from 6.5% in arrears in 2022 to 7.8% in 2023 amid affordability pressures.

“But we’re in a housing crisis, and more and more people, through no fault of their own, are struggling to pay their rent on time,” warned Dale Whitmore, the director of policy and law reform at the Canadian Centre for Housing Rights. “Our worry is that the reverse of what they’re saying could also be the case. If somebody hasn’t always been able to pay their rent on time, that could be counted against them. And that could be really harmful.”

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