Opinion: Canadian renters face unfairness as prices continue to climb

Opinion: Canadian renters face unfairness as prices continue to climb

Written for Daily Hive by Andrew Graham, CEO and co-founder of Borrowell

Almost daily we see headlines about climbing rents in Canadian cities. In Vancouver, Canada’s most expensive market, the cost of the average one-bedroom home has climbed by over 14% in a year.

It’s similar in Toronto, where the average one-bedroom now rents for $2,257, up $400 from a year ago. Rentals.ca’s August report showed the average monthly cost of a one-bedroom rental in Calgary was $1,583 in July 2022, up 27.1% year-over-year.

It’s also becoming harder for renters to get into the housing market as interest rates rise and mortgages become more expensive. National Bank found that a typical home now requires nearly two-thirds of a household’s income just to service the mortgage payments.

There’s a painful reality here: it’s hard to get a mortgage with a low credit score, but it’s harder to build credit without a mortgage. For decades, rent hasn’t counted towards one’s credit score, even though it’s often as much as a mortgage payment.

This situation is unfair – but understandable. With thousands of landlords across the country as “mom-and-pop” owners with only one or two units, there’s been no easy way to collect payment histories from possible renters.

There are potential improvements for the credit system and one is now a reality in Canada; enabling renters to have rent payments included in their credit history, without involving their landlord.

The movement towards open banking is making this possible. Open banking allows consumers to share their banking data, in a secured way, with, in this case, a credit bureau.

Getting credit for rental payments becomes as easy as logging into online banking and confirming the rental withdrawal. Smaller regular payments such as a Netflix subscription could also illustrate healthy financial habits.

Another innovation could change how rent is paid. While rent is typically one large payment, it could be broken into smaller payments, matching paychecks, with the landlord still receiving the same total amount.

There is more that renters can do to improve their credit scores. Here are several tips to consider.

1. Always ensure bills are paid on time

Payment history is a big determinant of one’s credit score. Keep a calendar of your bill due dates to ensure that they are always paid on time and in full, or set up automatic bill payments from your bank account or credit card. Even one late bill payment can negatively affect your credit score.

2. Use credit to show that you can responsibly borrow and pay

Even if you prefer to use debit or cash to pay for purchases, having credit cards that fit your spending habits is beneficial. When possible, pay off cards in full. You can do this by paying for groceries or household expenses with a credit card and immediately paying it off. This helps you to earn rewards from your credit card while ensuring you’re paying bills on time and not paying interest on your credit balance.

3. Don’t cancel your oldest credit card and don’t max out your cards

Canceling an old credit card may decrease your credit score as you lose credit history and increase your credit utilization, which represents how much of your credit limits you are using. The rule of thumb is to use under 30%. For example, if the credit limit across all your credit cards and lines of credit is $10,000, you should only use $3,000 of that limit. A high utilization rate can be a red flag to lenders, as you are using a large amount of your total available credit.

4. Explore secure credit cards

If you are new to Canada or have past credit challenges, you may not qualify for a traditional credit card. A secured credit card can be a great solution. You send funds to the issuer in advance and then get to use the card similarly to a regular credit card.

With millions of Canadian renters navigating a challenging and expensive market, we must offer renters opportunities to show their financial strengths. Making life easier for the responsible renter results in a fairer system; something we need in Canada immediately.

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