In this episode of CPMP we delve into tenant credit scores and how a rental property owner can have impact on their residents credit scores negatively AND positively!
Welcome to Canada's Property Management Podcast, your number one resource for investing, managing, and maximizing the value of your real estate assets. And now here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.
Carla Browne (00:19):
Hi, Adrian. It's good to be back with you again.
Adrian Schulz (00:21):
It's been a while. It is a new year and it's officially season two of Canada's Property Management Podcast.
Carla Browne (00:30):
Yeah, thanks for saying that. I kind of forgot about that myself and it feels kind of good, although 2021, 2022 are kind of meshing together a little bit. But yeah, let's start this one off. In today's episode, we're going to talk about something that I would say most landlords don't talk about, and that is how you can impact a tenant's credit score.
Adrian Schulz (00:50):
You mean how I check their score? No.
Carla Browne (00:53):
No, I don't. And that's where I always say it's more than, how do I say that? It's more than just about the score. We talk about at credit scoring or that number. So this is back to your parenting skills, how you to tell your kids when they're finished a soccer or a hockey game, and it's not all about the score. This is the same thing. It's not all about pulling their credit score. It is about how you can actually impact their credit score. And this does really impact how you can get quality tenants. So we do this through a third-party vendor, and anyone can do this. Anyone, a small or large landlord, can do this, but it's a huge advantage for the tenant. So the advantage on the tenant side is because we can actually positively impact their credit score by them paying their rent on time.
Adrian Schulz (01:42):
So you mean a tenant can actually have a benefit of being a tenant of RPM because you report their rental payments?
Carla Browne (01:52):
Adrian Schulz (01:53):
Which makes their score go up, if they pay.
Carla Browne (01:56):
Yeah. In order to get credit, you have to have credit, right? So you have to do something to make other creditors see you can handle credit. So you do that with a mortgage, and that's been traditionally how you would really gain a good credit score. But how do you do that if you want to get a mortgage, right? So then you have to get a car payment or you get a phone payment, or there's all these other things in the credit world, I guess, that you do. But now, by paying your rent on time, we can help tenants build a credit score. I think it's a crazy good quality.
Adrian Schulz (02:25):
Oh, that's amazing. So when you do, in fact, evolve or change to home ownership, and you need to apply for a mortgage, you need two credit lines on your credit bureau. Traditionally, it's a credit card and a loan or a car payment, but those are all debt items. Whereas this, it's just your landlord reporting that you're paying your rent, so there's not going to be a debt balance, which is even better than those other two credit line items that I mentioned. Wow, that's amazing. Is this new to Canada?
Carla Browne (02:59):
Well, relatively new, I think, in this space. We've been doing it for over a year now, for sure, in most of our offices. And one thing I do want to make sure that people understand is tenants have to agree to this. You can't start reporting things on people's credit bureaus without them understanding that you're doing it. So, that's number one. And number two, people always think that we want to report as landlords when they don't pay their rent, but that's really not our goal. Our goal is to report when they do pay their rent.
Carla Browne (03:27):
So now, this is something really, I think, a huge advantage for tenants to understand. And then for a landlord, so if we're telling a tenant that we can impact their score positively, and they know that we could impact it negatively as well, you're going to have that tenants kind of self-weed them out, so you don't have to screen them, because they're not going to be interested in coming to you if they're not interested in paying their rent, because you're really looking at this. And if they are interested in paying their rent, they're going to be like, "Wow, if I'm choosing between two properties, this one's going to help me later on in life in a different way than this one might." So now you're actually giving a bonus or an advantage to renting that particular property.
Adrian Schulz (04:07):
And not only is it a benefit to their credit report and their credit score, but I think it's also a benefit of when and if they ever decide to move, now the next landlord also has ability to look at the credit worthiness of the tenants, specifically from the landlord reporting, versus the other credit line items. Because I would always argue that someone will prioritize their rent or their mortgage payment over other debt items. Nobody wants to lose the roof over their head, which means that maybe even when they have a lower credit score, they could be considered, because they now have proof that they always pay their rent on time. I love it.
Carla Browne (04:51):
That's an excellent point, because I often say the number or the score that people look at through TransUnion or Equifax, that doesn't tell the whole story. And we you're renting to a tenant, you need to know the story. So our rent credit reports can show that whole story. It can show where they lived before, where they lived before that, where their place of employment is, what kind of debt do they have, to your point. Where do they pay their bills? Where aren't they paying their bills? Do they maybe have a utility debt? Because that means they're probably not going to be able to hookup utilities, and I think we talked about that on a previous episode. So it's about looking at the whole story, and this is just one more way that you can kind of look at the story, verify the story, or at least ask the questions. Because that number could not be strong from a credit scoring perspective, but that could just mean they have a bruising in their credit, and a bruise means that it could heal, right? So it's not the only thing that you should look at.
Adrian Schulz (05:46):
So great benefit to the tenant. Extremely competitive, I think, in the rental marketplace, so definitely worth considering when selecting a property manager is to work with one that actually offers this unique value proposition. I'm curious from your property manager's perspective or from a landlord investor perspective, how does this protect them?
Carla Browne (06:11):
How does it to protect the landlord?
Adrian Schulz (06:13):
Carla Browne (06:14):
By being able to impact the score. So if the protection is, is that I said, first of all, you're going to find that tenants self-weed them out. So they screen themselves. They're not going to sign to have themselves be able to report it to credit or to affect their credit scoring if they aren't going to pay their rent on time. And as well, is then you have a strong ability to be able to do it a collection, if you need to, because they've signed off on all of this.
Adrian Schulz (06:40):
Wow. I forget, how do we end these episodes? There's so many good nuggets here, but there is a way that we conclude. How is it?
Carla Browne (06:50):
It is. Now that's real property management.
Adrian Schulz (06:53):
It sure is.
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