Federal plan would count rent toward a credit score. Who will it help — and who could it hurt?

A federal proposal to include rental payments in calculating credit scores might help some Canadians move into home ownership, but it could have consequences on renters who are already struggling with rising costs.

One measure of the proposed Canadian Renters' Bill of Rights, announced last week by Prime Minister Justin Trudeau, would use timely rental payments to calculate a person's credit rating. This, it said, would help level the playing field for young renters, particularly those who want to eventually buy a home.

"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 announcement said.

Trudeau said there was something fundamentally unfair about paying $2,000 a month in rent while those paying the same for a mortgage get equity and can build their credit score.

An amendment to the Canadian Mortgage Charter would urge landlords, banks, credit bureaus and fintech companies to include rental reporting in a credit score.

Reaction to the federal proposal — which would require the co-operation of provinces — was mixed. 

Those in favour agree it would help aspiring homeowners build the financial credibility needed to qualify for a mortgage or help them secure a lower borrowing rate. 

Critics, however, said the measure doesn't address the key issues of insufficient housing supply and affordability, but it could hurt the credit scores of people who are struggling to pay their rent on time. 

"Frankly, for the last decade or so, there's become a great divide in this country between homeowners and renters, and a lot of renters have felt left behind," said Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates Inc.

The proposed measure is an important step for renters whose monthly housing payments are likely their biggest expense, he said. A strong record of punctual rent payments would lend credibility to those who want to jump into the housing market.

If "all of a sudden you've got 12, 24 [or] 36 months behind you in making rent payments, it's going to make a big difference to your credit score and to your ability to borrow down the road," said Terrio.

Higher credit scores may be moot given a housing market in which demand far outweighs supply. The cost of rental units also continues to soar, with vacancy rates reaching a new low of 1.5 per cent in 2023 — the lowest rate on record since the CMHC began tracking that data in 1988. The demand is in part fuelled by Canada's growing population rate.

"This is not going to fix the supply issue," Terrio said, noting that it might compel even more people to enter the housing market, "but it's going to make things more fair between renters and homeowners." 

While the measure would be "tremendously helpful" for renters on the cusp of qualifying for a mortgage, the current reality is that many young Canadians believe home ownership is out of reach, said Nemoy Lewis, an assistant professor in the School of Urban and Regional Planning at Toronto Metropolitan University.