What Do Landlords in Toronto Look For On A Credit Check

What Do Landlords in Toronto Look For On A Credit Check and Why It Is Absolutely Necessary

A credit check has become an essential part of the rental application process in Toronto, Canada. Landlords rely on credit checks to assess a prospective tenant’s financial responsibility and determine whether they are likely to pay rent on time. This document aims to provide an overview of what landlords in Toronto look for on a credit check and explain why it is absolutely necessary.

Credit Score:

One of the primary factors that landlords consider during a credit check is the applicant’s credit score. The credit score is a numerical representation of an individual’s creditworthiness, reflecting their history of borrowing and repaying debts. Landlords often set a minimum credit score requirement to ensure the financial stability of potential tenants.

Payment History:

Landlords pay close attention to an applicant’s payment history on their credit check. This section reveals whether the individual has a track record of making timely payments on their debts, such as credit cards, loans, and previous rental agreements. A consistent pattern of late or missed payments may raise concerns about a tenant’s reliability in meeting their financial obligations.

Outstanding Debts:

The credit check also provides information about an applicant’s outstanding debts. Landlords want to ensure that potential tenants have manageable debt loads and are not overwhelmed by financial obligations. High levels of debt could indicate a higher risk of defaulting on rent payments, which landlords aim to avoid.

Bankruptcy or Collections:

Landlords are cautious about applicants who have a history of bankruptcy or collections. A bankruptcy record indicates that an individual has been unable to manage their finances effectively, which may raise doubts about their ability to fulfill rental obligations. Similarly, collections indicate that the individual has neglected to pay their debts or has faced difficulties in doing so.

Identity Verification:

Besides assessing financial aspects, landlords also use credit checks for identity verification. This helps confirm the applicant’s identity and ensures they are who they claim to be. It is crucial for landlords to have accurate information about their tenants to maintain a safe and secure rental environment.

Why Credit Checks Are Absolutely Necessary:

Credit checks are considered absolutely necessary by landlords for several reasons:

Risk Mitigation: Conducting credit checks allows landlords to assess the financial risk associated with prospective tenants. By evaluating an applicant’s credit history, landlords can make more informed decisions and minimize the likelihood of rental payment defaults.
Protecting Investment: Owning and maintaining rental properties is a significant investment for landlords. By conducting credit checks, they can identify tenants who are financially responsible and more likely to take care of the property. This helps protect their investment and ensures the longevity of their rental business.
Legal Compliance: In Toronto, landlords are required to follow fair housing laws and regulations. Conducting credit checks is part of the due diligence process that helps ensure fairness and equal treatment of all applicants. It helps landlords make decisions based on objective criteria rather than personal biases.

Conclusion:

In the competitive rental market of Toronto, credit checks have become an integral part of the tenant screening process. Landlords rely on credit checks to assess an applicant’s financial responsibility, verify their identity, and protect their investment. By evaluating credit scores, payment history, outstanding debts, and other factors, landlords can make informed decisions and secure reliable tenants. As such, credit checks are absolutely necessary to ensure a smooth and successful landlord-tenant relationship in Toronto.

Debt load

A credit report reveals any outstanding debts, credit card payments, or loans that you have. It will also show if any of your debts have been sent to a collection agency.
Landlords will consider someone’s debt load before approving them. For example, a tenant with a great deal of student debt and outstanding bills may be less likely to pay the rent on time.

Payment habits

Your credit score is affected by things like:

Whether you go above (or near) your credit limit
The number of credit cards you have
The length of time you’ve had your credit card

Payment history

Do you pay your bills on time? If you’re consistently late on making payments, this will be reflected in your credit score.

If your credit score was affected by a particular event, consider talking to your potential landlord about it. For example, you might have gone through financial turmoil due to a divorce, the pandemic, or job loss. If you’re worried that your credit score may affect your chances of getting approved, having an open and honest conversation may be your best bet.

Breaking Down Your Own Credit Report

How does your credit report compare to what’s considered “good” or “bad”? Here’s a breakdown of what the scores mean:

Excellent: 800 or more
Great: 725-799
Good: 660-724
Poor: Less than 660

If your score is around 660 or more, then you’ll have a good chance of being approved for a rental.

If you score in the higher range, nice work! You’ve been responsible with your credit cards, and it’s paid off. But if your score needs work, don’t fret; there are plenty of ways to improve it. We’re going to explore that in the next section.

What if I have no credit history?

If this is your first time renting an apartment, you might not have a credit card or a limited credit history. In this case, your landlord will use other information to assess your risk level, including employer references and paystubs.

Is it bad to check your credit score?

You’ve probably heard that checking your credit score is a bad thing. But that’s not necessarily the case. To clear this up, we’re going to define the two types of credit checks:

Soft inquiry: Your credit score will not be impacted by a soft credit check. These are done for insurance applications, employment applications, and pre-approved credit offers.
Hard inquiry: A hard credit check will remain on your credit report for ~2 years. These are necessary when you apply for a credit limit increase, an apartment, or a substantial loan (such as a mortgage, car, or student loan).

How To Improve Your Credit Score

If you have a low credit score, you might worry that it will cause you to lose out on a great apartment.

By working on your credit score, you can improve your chances of getting approved for an apartment.

What can you do to increase your credit score? We’ve put together a few ways you can build healthier habits with your credit card. Try to practise the following:

Don’t go over your credit limit

Every credit card has a limit. If you go over this amount, it will impact your credit score.

In addition, try not to utilize too much of your available credit. Use your debit card or cash to lower your reliance on your credit. As a guideline, try not to use more than 30% of your available credit.

If you’re concerned about going over your credit limit, consider applying for a higher one!

Don’t apply for too many credit cards

If you have one or two credit cards, you don’t need to worry. Having two cards can help you keep your credit utilization low. But if you apply for several cards (especially within a short time), it may impact your credit score.

Always pay your bills on time

If you have trouble remembering to pay, set reminders once or twice a month. This will ensure you always make your payments before they’re due. Alternatively, you can make a note to pay whenever you get a paycheque (for most people, that’s twice a month).

Here’s another tip: Connect any monthly payments to your credit card. This can be anything from a gym membership to your internet bills. These payments will automatically be withdrawn and paid each month.

If you don’t yet have a credit history, this is a great way to start establishing it. Making those payments consistently can help boost your credit score.

Report errors on your credit report

Accidents happen; sometimes, you may have a low credit score through no fault of your own. If you see any errors on your credit report, be sure to notify the credit reporting agencies so it can be corrected ASAP.

Contact the credit reporting company that provided you with the score. You should see your credit score increase once the issue is resolved.

If you’re on the hunt for Winnipeg apartments, check out our listings! At Globe Property Management, we do run credit checks; however, the applicants aren’t required to provide them. We perform the tenant’s credit report at our office.

We’re happy to help you find your future home. Browse our apartments today!

What does a credit report show to landlords?