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late fees Mar 20, 2023

Does Paying Rent Late Affect Your Credit Score in Canada?

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Does Paying Rent Late Affect Your Credit Score in Canada?

Being able to pay your rent is important, but sometimes, it can become unmanageable. With the rising cost of living, it’s no surprise that one in four Canadians are having a difficult time managing an unexpected expense of $500. What’s more is that late rent payments can affect your credit score. But, how? It’s not always clear how or when this happens, which is why you’ll want to be prepared if it does.

Read on to learn how late rent can affect your credit score in Canada with the help of iCASH, a leading Canadian online lender. You can use this information to make informed decisions, no matter what your financial situation looks like.

What Is a Credit Score and Why Is It Important in Canada?

Your credit score is a reflection of your financial health. It’s a three-digit number ranging from 300-900 that speaks to how responsible you are when it comes to managing your money. Credit scores are important in Canada because most lenders rely on your credit rating to decide whether or not they should give you a loan or a line of credit.

For example, if your history shows that you have paid off debts and make payments on time, then banks may be more likely to offer you loans at lower interest rates than someone whose history shows that they’re less reliable paying back what they owe.

How Rent Payments are Reported to Credit Bureaus

In Canada, landlords are not typically required to report rent payments to the major credit bureaus like Equifax and TransUnion. This means that if you make your rent payments on time every month, it will not directly impact your credit score.

However, if you are ever late on making your monthly rent payments, this could result in negative consequences for your credit score. Much like defaulting on a loan or other monthly payments, not paying your rent on time can result in a drop in your credit score if it’s reported. In other words, if your landlord decides to report the missed payment to a credit bureau, it could show up on your credit report in time and cause a drop in your score.

If you do make your rent payments on time, you can check your history and even request a rent receipt from your landlord to prove your payments for each month. This way, you can ensure your landlord always reports the most accurate, up-to-date information. You can even use rent reporting tools, which help you build good credit history with rent payments you’re already making.

Repercussions of Late Rent Payments

In addition to charging you late fees, a landlord can report the late payment to credit bureaus. If your landlord chooses to report the late payment, it can often show up as a collection account on the individual’s credit report. Collection accounts can significantly lower your credit score because you are considered to have high-risk debts, which indicates financial instability.

A collection account is considered negative information and can stay on your report for up to seven years unless it is removed by the creditor. Other types of negative information that can show up on your credit report include:

  • Missed payments of a debt (including missed rent payments)
  • Bankruptcies or consumer proposals
  • Other negative accounts such as repossessions, foreclosures, short sales or deed of lieu in foreclosures

It’s important to note that if you make arrangements with your landlord after missing a payment, such as paying back the missed amount plus any additional fees or interest charges over time, this does not mean that the collection account won't appear on your report. It is still possible for landlords to report missed payments as collections even if there is an agreement between both parties; however, it may take some negotiation from both sides and should be discussed before any agreement is made.

Late rent payments can have serious implications if you’re looking to establish or maintain a good credit score in Canada. Not only do late payments damage your creditworthiness, it also shows potential landlords that you may not be as financially responsible as they would like a tenant to be. To avoid being penalized for late rent payments, it’s important to prioritize your household budget, which includes paying your living expenses on time each month.

When Will a Late Rent Payment Show Up on Your Credit Report?

We know that late rent payments can have a negative impact on your credit score, but when will they show up on your credit report? In Canada, landlords or property management companies can report late rent payments to consumer reporting agencies after 30 days of non-payment.

Once a landlord has reported late rent payments, it can take an additional 30 days for those entries to appear on your credit report. After 60 days, the late payment will most likely be visible to potential creditors and lenders you may want to apply for in the future. Moreover, if you owe back rent for more than one month, all of the late payments may be reported together as one entry on your credit report. If you didn’t make your rent payment on time, you can ask Equifax or TransUnion to let you provide a reason why, which can be included in your credit file.

How to Monitor Your Credit Score After Paying Rent Late

If your landlord has reported a late rent payment to a credit bureau, you’ll want to monitor your credit score to make sure the mistake doesn’t cause long term financial damage.

Here are some tips to help you monitor your credit score after paying your rent late:

1. Get a Copy of Your Credit Report

The first thing you should do after paying your rent late is request a free copy of your credit report from one of the major credit bureaus. By reviewing your report carefully for accuracy, you’ll see exactly how your late payment has impacted your credit score. It’s also best practice to review your report on a regular basis in order to be aware of changes or inaccuracies.

2. Track Your Credit Score Over Time

Once you’ve reviewed your credit report, it’s time to start tracking your score over time. You can use a variety of online services that provide access to your credit score for free or for a small fee. Make sure to check in regularly (once a month or every few months) so that you can stay up-to-date on any changes in your score due to the late payment.

3. Reach Out To Your Landlord

If you know you’re going to miss your next rent payment, talk to your landlord before this happens, especially if you’re experiencing a difficult situation. Your landlord may be willing to work with you if he or she understands that this was an unusual circumstance and not indicative of how reliable of a tenant you are otherwise.

4. Take Action to Improve Your Credit Score

Taking actionable steps towards improving and restoring your credit score back into good standing is important. Credit bureaus give the best scores to those with a long-standing history of responsible borrowing with different types of credit.

Rebuilding your credit takes time, but here are some tips you can follow to get started:

  • Check your credit report for any errors.
  • Apply for a small loan online that you can easily repay within the allocated time can help demonstrate responsible borrowing habits.
  • Make sure all future payments are made on time in order to prevent further financial mishaps.  
  • Consider using a service that monitors credit like Credit Karma to properly keep track of everything.

Financial Solutions for All Credit Types

If you find yourself in a position where you've been unable to make timely rent payments due to unforeseen circumstances, talk with your landlord promptly about alternative arrangements. But, if you need additional financial assistance, an iCASH instant online loan can help cover your next rent payment. We’ve helped thousands of people pay their rent on time, and can provide financial solutions for all credit types.