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Landlords like to be assured that you’re able to comfortably afford your rent and that you’re reliable and on time with your payments. Many landlords prefer to run a credit check as an added measure to see your financial behaviour and verify you’re a responsible tenant. It’s just part of the process when they screen tenants to help landlords make informed decisions.
Do Landlords do Credit Checks?
In Canada, in most provinces, landlords are allowed to perform credit checks on potential tenants. That said, they can’t perform a credit check without your written consent. They have a legal obligation to do this.
Sometimes, this is a separate document you’re asked to sign, and other times, landlords include it with your rental application. Either way, it’s typically done before the rental contract is finalized to help the landlord verify that you’re the right tenant.
The reason that landlords perform credit checks is to verify you’re able to pay your rent and that you paid it on time. It allows them to see the applicant’s credit history, history of bill payments, financial history and any collections or bankruptcy on the account. This isn’t the only method they use, though, to help them make a decision. They usually request references from previous landlords and proof of income. This shows potential landlord's financial responsibility and assures them that you’re able to handle your financial obligations.
What Landlords Look for in a Credit Check
When a landlord performs a credit check, there are a few things that they look for on your full credit report. Keep in mind, though, that this isn’t a soft credit check; it’s a hard credit check. This means that it likely will affect your credit score, and they’re able to see all of your credit history.
Credit Score
One of the first things that a landlord looks for when going over your credit report is your credit score. While your credit score doesn’t determine whether you will pay your bills on time or not, it does help to determine the likelihood of whether or not you pay rent on time. Essentially, if you have a higher credit score, then it shows a landlord you’re most likely to make your payments on time. If you have a lower credit score, This shows them that the chances are lower that you’ll make your payments on time.
Debt to Income Ratio
Another factor that landlords look at is your total debt load. They can see how many debt obligations you currently hold, what your monthly payments are and how much you make. They can compare this to your monthly income to see the likelihood of you being able to afford your monthly rent payments. They can also see your debt history and if you missed any payments.
Credit History
Another important factor included in your detailed reports is your credit history. Your credit history shows the landlord your debt payment history, if you had any late or missed payments when they occurred, your debt levels or these accounts and how many there were. If you have a lot of late or missed payments, landlords see this as a red flag, and it could impact your ability to get approved for the rental unit.
Red Flags
Along with your credit history, landlords can also see any collections, bankruptcies, tax liens, and foreclosures on your credit report. These things are considered to be red flags,
But they don’t necessarily mean you won’t get approved. A tenant’s credit report also shows if these things have been resolved and when they occurred. They can also see if you have a positive credit history after these events and if you’ve managed to make payments on time since then.
How to Run a Credit Check on a Tenant
It’s actually relatively easy for a landlord to do a tenant’s credit check If it can be done through either of the credit bureaus obtaining your Equifax credit reports and Transunion credit reports. As long as they have your written consent, they can perform a hard credit check with either credit bureau. Keep in mind, though, that your credit scores will be different with each credit agency.
The other option is through a third party that performs credit checks for landlords. These services are pretty thorough and do credit and background checks, providing the landlord with a complete picture. While most of these services do cost a fee, they usually run between $10 and $15. That said, other free services can be checked more often; they just might go into less detail than the ones that you pay for.
It’s important to remember, though, that no matter how the credit check is done, landlords are less particular than lenders about your debt accounts, and as long as they have confidence that you can pay the rent, you should get approved.
How to Pass a Rental Credit Check
When it comes to lending, it’s easiest to get approval and the best rates if your credit score is at least 700 or higher. When it comes to renting, your credit score doesn’t need to be as high. Typically, as long as you have a credit score of at least 600 when your landlord does the credit check, you can get approved. That doesn’t mean you’ll get approved if your score is below 600; it just means that the landlord will look closer at your credit history and other credit information to determine why the credit score is so low.
If you're looking into getting a rental but have a low credit score, there are a few things you can do to improve your credit score and help with approval. The first thing is simple: make sure you're making all of your payments on time. You also want to make sure that your debt utilization is low. It looks best if you use less than 35% of your total available credit from your revolving credit accounts. These are things like lines of credit and credit cards. These small things can help you a lot with approval and avoid large amounts of credit card debt.
Tenant Screening Process
The tenant screening process helps landlords determine who is the best fit for their rental and who will make their payments on time. This is also the time when they determine if the prospective tenant meets all of their requirements. Another way that they do this is with a Tenant Screening Report. This is different from a credit check but is a type of background check, which is one of the other tenant screening reports.
Tenant screening reports give landlords a bigger picture of prospective tenants. More than just a credit score. They show landlords any previous eviction history, criminal history, and any unlawful detentions. If you’ve had to have been removed from a property that you’ve been renting, it’s likely to deter the landlord from renting to you.
Documents Required for Rentals
When you’re applying for rental properties, landlords require a few things to help them verify who you are and if you’ll make a good fit for their rental property. Here are some of the things that more landlords require.
Rental Application
The first thing you do when you want to rent somewhere is fill out a rental application. This application will request that you provide any previous rental information, including the address and landlord information. They also ask who is going to be living on the property, if you’re employed, your employment information and employment history, and how long you’re looking to rent. It may also ask for personal references.
Letter of Employment
Another thing a lot of landlords require is a letter of employment. This is a letter from your employer stating how much you make, how long you’ve been employed with them, and how often you’re guaranteed to work. The reason that many landlords require this is that it assures them that you will be able to pay your rent.
Government Issued ID
A government-issued ID is required for you to prove who you are. They may require a copy of it to keep on file. This is especially common when you’re dealing with a rental management company instead of the landlord directly. Landlords who have more than one property investments typically use these companies to help streamline the process.
Pay stubs
It’s not uncommon for landlords to request to see a copy of your last two pay stubs. The reason they want to see this is because they want to verify that you’re receiving a steady income. If you are receiving income from an alternative income source, they’ll still likely want to receive proof of your two most recent payments. Depending on how you’re paying your rent, they may also need a copy of your direct deposit and banking information.
Proof of Tenant Insurance
While this isn’t a requirement for all landlords, many landlords do require proof of tenant insurance in order to confirm the rental agreement or lease agreement. The reason they require this is that, in the event of an accident or disaster, your contents are insured. In the case of a flood or a broken hot water tank, anything that is destroyed will be replaced by your contents insurance. The landlord's home insurance would cover the damage to the home.
Getting a Rental With Bad Credit
Even if you have poor credit and are unable to pass a tenant credit check by yourself, that doesn’t mean that you won’t be able to find a place to rent. Here are a few ways that you can do this.
- Explain your situation: The first way to handle this is to discuss it with the landlord and discover why you aren’t approved. There may be an easy explanation for the reason you’ve been denied, and you can come up with a solution.
- Provide more information: If the reason you’ve been denied is the landlord isn’t convinced that you can make your rent payments, you may want to provide them with more documents. If you can show a few months' worth of statements for your bank accounts, tax returns, and other documents to prove you can pay, this could ease your landlord's mind.
- Get a cosigner: If the landlord is uneasy about renting to you, it could be a good idea to get a cosigner. If you’re unable to make your rent payments, the cosigner is agreeing to make those payments for you. For many landlords, this can ease their mind since they’ll be receiving their rent payment either way.
- Provide references: While some landlords request references, others don’t. In order to prove that you can pay your rent and you’re reliable, you can add a previous landlord or employer as a reference. Having the extra reassurance can be helpful in the approval process.
How to Improve Your Credit Score
Whether you’re looking to get a loan, rent a property or just have a higher credit score. There are plenty of little things that you can do to improve your credit and build up your positive credit history. Here are some key things that can make a large difference. All of these things separately make a small difference in your credit score. When you combine them together, then you see a much larger difference.
- Make your payments on time: While making your payments on time doesn’t improve your score, missing and late payments do have a negative impact on your credit score. They will also show up in your credit history. It shows you’re responsible for other financial obligations.
- Keep your credit utilization low: For the best results on your credit score, it’s best to keep your utilization between 0% and 30%. This shows financial responsibility and saves you money.
- Have a good credit mix on your report: Having a good mix of credit on your report shows versatility and is a green flag to lenders. It also shows a good credit history and can lead to a good credit score.
- Track your progress by checking your credit report: Paying attention to your credit report keeps you informed and accountable for your progress. You can check your own credit report through different platforms, like Credit Karma and Borrowell, that allow you to do so with a free account.
- Consolidate your debt: By consolidating your debt, you're reducing the amount you pay in interest and making it more straightforward to pay off your debt. It also can diversify your credit mix.
- Limit new credit applications: When you apply for a new credit line, your credit score takes a hit. Every hard credit check can reduce your credit score by 10 to 15 points. It’s recommended to have less than 6 credit applications per year.
Overview
When it comes to renting in Canada, it’s harder than ever to find a rental. For this reason, it’s important to know the process as a rental applicant in the rental industry and what you need to do to get approved. Even if you don’t have everything in your finances where they need to be, there are ways to get you where you need to be and get you approved for the rental property you would like. An excellent place to start is with your credit score.
Many landlords in Canada require a credit check as part of your rental application, whether it’s an online rental application or not. While the requirements for your credit score are much lower for rentals than they are for lending, it’s still important that you know where you sit. You can check your credit score yourself in preparation for your application. Even if you don’t quite meet the landlord's requirements, there are ways you can plead your case and ease the landlord's mind about your financial responsibility, reassuring them they’ll be receiving their rental payments on time.
