Can paying rent on time boost credit scores for tenants?

There are 4.2M rental units in Canada. Half of these are rented by households with annual income under $50K. The average household in this group makes about $35K/year and spends about 34% of the income on rent. For the households in the lowest quartile, the portion of income that goes to rent (and utilities) is upwards of 40%. [Data sourced via Rental Housing Index].

Recognizing the financial commitment of renters

Renters do not due recognition for their financial commitments. Despite a substantial portion of the Canadian population paying a significant percentage of their take home salary to rent on a regular basis, their financial commitments are not reflected in their credit score. Indeed, the credit scores are assessed based on the balance of their disposable income less rent and utilities.

Impact of low credit scores on borrowing rates

Because of the lack of recognition of rent payments towards credit scores, the risk profiles of renters gets inflated. The interest rates offered to renters on mortgages, auto loans, credit cards is correspondingly higher. For instance, the difference in interest rates for two individuals with credit scores 660 vs 600 is over 1%. The person with the lower score pays about $1000/year more for a $100K loan. Over a 30 year term this a $30K difference. [Data via myFico].

Paying rent on time can boost credit scores

Dwello’s core mission is to help renters improve their financial health. Six months of regular, on-time rent payments could boost a renter’s credit scores as much as 50-100 points. That is a savings of over $1000/year in interest payments on a $100K loan.

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