Your monthly rent payment can go beyond just keeping a roof over your head, it can be tapped for potential benefits such as improving your credit score or earning cash-back rewards. But experts say these financial tools should be used wisely.
Rent reporting can be facilitated by your landlord, or you can sign up with a number of companies offering to report your monthly payments to credit bureaus. Each time you pay rent, you can potentially increase your credit score. There are also opportunities to earn cash back on rent payments, either through credit cards or special programs.
Rent reporting can be “incredibly practical, incredibly helpful” for people who are building credit, said Shannon Terrell, spokesperson for NerdWallet Canada.
But it's best suited for someone who is financially secure, she added.
“If you are someone who potentially struggles to make those rent payments in a timely fashion, maybe rent reporting is not the ideal route for you at this time,” Terrell said.
A payment that is slightly late shouldn’t ding your score though, said Eva Wong, co-founder and chief operating officer of Borrowell. The fintech company focuses on money management tools, including credit monitoring and options to improve your credit rating.
“What matters is that you made the [rent] payment, right?” Wong said. “Most lenders give a 30-day grace period for paying any bills. So as long as the person is coming back and saying, ‘Yes, I did pay my October rent, and this is what it was,’ usually lenders don’t report something late unless it’s more than 30 days.”
Borrowell launched its rent-reporting tool in 2022, which doesn’t require a landlord’s involvement. Renters can either connect their accounts to Borrowell or upload financial documents from their bank — even if it's just screen grabs of the rent payment coming out. They also require a lease document.
For a quick credit score boost, Borrowell also offers a tool that can report up to 24 months of rent payments made in the past, for a one-time fee. The company will refund this fee if users don’t see their score increase.
“They can be large increases, especially for people who are new to credit and don’t have a lot of credit history, or have a lower credit score,” Wong said. “Obviously, the higher your credit score, the less room there is to go.”
For users with a score below 700, about 70 per cent saw their rating improve, Wong added. The average boost was 27 points among that group.
Chexy, Zenbase, FrontLobby and City Lending Centers are a handful of other companies with credit-reporting tools; some also offer rent-splitting with roommates or breaking down rent payments into smaller chunks.
KOHO also bundles tools for renters, launching their rent-reporting service this year, while also offering cash back on rent without a credit card, tenants’ insurance, and free credit reports in the app.
For cash back, a renter could see up to $90 annually. Since KOHO’s rent-reporting tool is new, it doesn't have program data yet — but credit score increases would likely surpass another credit-building product it offers, which sees an average boost of 22 points after three months.
As always when shopping around, compare fees and bundling requirements to unlock some perks.
For those who want to pay rent with a credit card for cash back or rewards points, Terrell said there’s more math to do.
First, determine which rewards your rent payments are eligible for. There are often tiered rates for types of spending on credit cards, from groceries to gas, to “all other transactions,” she pointed out.
Next, check for any spending caps for rewards.
Some credit cards, Terrell said, allow you to earn cash back up to a certain amount of spending — for instance, $5,000 or $10,000 per year. Any spending on the card beyond that won’t return any more cash to you. Since rent is a major expense, you might max out your rewards potential fast.
Lastly, find out the fees for the rental payment.
“These payment-processing platforms that allow you to pay your rent with your credit card, they might charge you a processing fee in the neighbourhood of one, two, three per cent or more,” Terrell said. Processing fees can potentially outweigh rewards, she added.
Mixing rent and credit card debt can also be dicey. You shouldn’t carry that balance month to month, she said.
“We put ourselves at risk of accumulating high-interest debt if we can’t, or don’t, pay off the balance in full in a timely fashion,” Terrell said.
“The other thing to think about here, too, is that carrying a balance on your credit card, even for a short period of time, can impact your credit utilization ratio. That’s a measure of how much debt you currently carry in relation to your total available credit. If you have a higher credit utilization ratio, that can actually hurt your credit and can pull down your credit score.”
Carrying a high balance also hinders your ability to absorb emergency and unforeseen costs, Terrell pointed out, as many Canadians use credit cards to cover gaps when finances are tight.
“So it’s a risky strategy,” she said, “and it certainly won’t be for everyone.”
This report by The Canadian Press was first published Dec. 24, 2024.
Nina Dragicevic, The Canadian Press
