119 – How Will My Low Credit Score Affect My Ability To Rent?

Wayne Kay 00:04
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. 

I’m Wayne Kay. Coming up in today’s show, renting with a bad credit score. My guest to help me is Daniel Maksymchak from LCTaylor Licensed Insolvency Trustee in Winnipeg.

We’re going to talk about how your credit score impacts you as a renter. How do you go about finding a place to rent if you do have bad credit? Can you be evicted for filing a Bankruptcy or a Consumer Proposal? And what happens if you owe money to your landlord when you file Bankruptcy or a Proposal? For this and more, Daniel Maksymchak is joining me. Hi there, Daniel.

Daniel Maksymchak 00:50
Hi, Wayne. How are you?

Wayne Kay 00:51
Hey, I’m doing great. How are you doing?

Daniel Maksymchak 00:53
I’m good, thanks. Always good to talk to you.

Wayne Kay 00:55
Yes, welcome back. We always have some good discussions, and boy, this is a big one because rent in Canada has gone crazy. What we’re seeing for rental prices these days, it causes me to have heart palpitations, and I’m not even looking to rent.

Daniel Maksymchak 01:13
Yes, it’s constantly in the news. There was something that came out the other day that the average rent is increasing by $100 a month in Canada each month. There was a story I read the other day about someone whose landlord increased the rent by $7,000 a month. That obviously is an outlier, but, I mean, it’s just crazy, the numbers that you’re hearing, and it’s no wonder that people are struggling with it.

Wayne Kay 01:37
I was looking at even just one bedrooms in some of the major cities, Vancouver’s or Toronto’s, and I’m like, you know what? I make a good living and I can’t even afford to go.

Daniel Maksymchak 01:48
It’s just blowing people away.

Wayne Kay 01:51
Okay, so when it comes to – we’re seeing a lot of people struggling and they have to have a place. Right. And we look at credit scores, and let’s talk about that. How are credit scores being affected these days by what’s going on with the economics of our country?

Daniel Maksymchak 02:11
Well, it’s unique person to person. Each person has their own individual credit score, and it’s a combination of the amount of credit that they have, how they’re repaying it, and various factors that are unique to that person.

So, if you look at it as a whole, I would say that with the amount of insolvencies increasing in recent months, the amount of consumer delinquencies are starting to rise a bit overall, I’d say credit scores are going down. I’m not sure if there’s anything published frequently that gives the aggregate credit score or the average credit score and how that’s changing, but I can’t see it improving with the current economic climate.

Wayne Kay 02:46
Yes, that’s kind of how I’m feeling as well. I’m not seeing any statistics about it, but just seeing what’s happening with Canadians and their debt. I would think that credit scores are going down. Now, does the credit score actually impact you as a renter, as a current renter where you’re living?

Daniel Maksymchak 03:01
It shouldn’t. I mean, your landlord at that point, once you’re into a place, should be looking at your payment history with that landlord. Right. Are you able to pay on time? Are you keeping your unit in good condition?

Those are the things that they’re usually looking at when you’re actually in the unit. But once you’re trying to move to a different unit or maybe move out from your parents or a university dorm or something like that and rent something on the open market, that’s where your credit score is going to be coming up. That’s the point at which you’re competing with other potential tenants for the unit. 

And landlords use credit scores for better or for worse. I mean, it’s not necessarily the best indicator of your ability to make your rent payments, but it is something that a landlord uses to screen between tenants.
So if there’s multiple people applying, that’s one thing that they can use to differentiate between the candidates.

Wayne Kay 03:54
Now, I know my son was looking to rent something about a year and a half ago, and it was very difficult because the rental market has a lot of people looking to rent places, and there doesn’t seem to be a lot of places available. And I’m not quite sure. I never asked him if he was actually asked about his credit score. Do they have to actually ask you to check or how does that work?

Daniel Maksymchak 04:18
Yes, I believe you have to consent to a credit check. That would be the law in most provinces. A lot of landlords, though, do that, especially big kinds of more corporate, we’ll call them landlords, who are managing multiple properties.

They have the capacity to do credit checks and they’re typically receiving perhaps more applicants. So they use that as a method to screen out those applicants. And because of the volume of applicants that they get, it makes sense in their eyes anyways, to check credit scores of the candidates.

Wayne Kay 04:49
Do you have some advice for somebody who’s looking to rent and maybe they do have bad credit?

Daniel Maksymchak 04:55
In that case, you’re going to want to try and mitigate that bad credit by having other factors on your side. If you can present good references from past landlords who can state that you’ve always paid your rent on time, they’ve never had an issue with your ability to pay, that would be in your favor. As well as sometimes you could even provide check images or redacted bank statements or something like that, showing that you’ve consistently been able to pay your rent on time and proving that fact.

That could go a long way to allaying the fears of the landlord. That is because your credit might be weak from something that’s happened in the past that you’re still going to be able to pay the rent and that you’re not going to cause them any problems with that aspect of your tenancy.

Wayne Kay 05:35
Because I guess that’s what they’re looking for. They want the person with the least problems not having to chase any rent or have issues.

Daniel Maksymchak 05:44
Yes, when they have multiple candidates they’re going to choose the one that they think is going to be able to pay on time.

And it’s unfortunate in some ways because they use credit score as a proxy for that and that might not necessarily be the best indicator for that. For someone, for example, who is in a Bankruptcy or a Consumer Proposal, they’re going to have a credit score that suffered as a result of that. 

But if you do the math in terms of their ability to pay the rent now that they’ve discharged their debt or are in the process of discharging that debt, through the process, they theoretically would have more cash flow to make their rent. It would be easier for them to make their rent payment as opposed to someone who has a great credit score because they’re consistently able to make just the minimum payments on their debt, which usually results in a good credit score because you’re paying that minimum. And the banks love you because you’re paying a lot of interest in that. 

But oftentimes those people will eventually hit the wall and suddenly their credit score will drop and they’re still carrying this debt load that makes it less easy to make their rent. So credit score is kind of a lagging indicator in some ways. 

If a landlord relies on that, in the case of someone who’s filed a Consumer Proposal or a Bankruptcy, they might be missing the fact that, well, actually, on a cash flow basis, that person might be better able to make their rent than a lot of other people out there because they’re not carrying any debt, if any.

Wayne Kay 07:08
Well, that actually brings up my next thought. As you mentioned, maybe somebody is going into a Bankruptcy or a Consumer Proposal. There’s probably a lot of worry and questions about could they be evicted because of filing a Bankruptcy or this Consumer Proposal. How does that work?

Daniel Maksymchak 07:27
The biggest factor in that is going to be – do they owe the landlord at the time that they file the Bankruptcy or the Consumer Proposal? They have to disclose all the debts that they have at that time. So if they have credit cards, bank loans, that kind of thing, debt other than to their landlord, those creditors will of course be notified of the filing and be going through that process. 

But the landlord isn’t going to be owed money, so they’re not going to be notified of that process and probably aren’t going to find out. On the other hand, if they do owe their landlord money, then they have an obligation to disclose that debt in the documents just the same as any of the other debts that they owe. And that’s going to, of course, alert the landlord that they are making that filing.

Wayne Kay 08:08
Does it make any big changes? Like when they’re in your office and they’re talking about Bankruptcy, it doesn’t really change the cash flow. The money is still going to be there to go for the rent. Right?

Daniel Maksymchak 08:22
Are you saying if they are current with their rent?

Wayne Kay 08:25
YeS, they’re current with their rent and all of a sudden they come to see you’ve got a financial problem and you decide one or the other, either it’s going to be a Bankruptcy or a Proposal. The cash flow will still be there to take care of the rent. As a landlord, you don’t have to stress about that, do you?

Daniel Maksymchak 08:42
In most cases, if they were able to continue to pay their rent at the same time as they were carrying this large debt load, there shouldn’t be any concern that they’re not going to be able to make their rent going forward now that this debt load has been dealt with through a Bankruptcy or Consumer Proposal right. 

If anything, it should increase their cash flow month to month and the available cash that they have to pay the rent.

Wayne Kay 09:04
Okay, and what if they do owe money? What if they do owe back rent? What happens in that situation?

Daniel Maksymchak 09:11
Then that’s when it becomes a problem because the money that you are owing to your landlord, according to the law, that’s a debt that you owe them and is to be treated largely the same as the other debts that you have, which means that you can’t pay it.

In some provinces, there’s legislation where you can’t be evicted for that past debt that’s included in the Bankruptcy or the Consumer Proposal. You basically reset your rent account with them and as long as you maintain your payments going forward, you’re okay in terms of they can’t legally evict you. 

Now, of course, if a landlord has been effectively feeling that they’ve been shortchanged an amount of money because of the Bankruptcy, then they are going to potentially have an issue now. They might treat you differently or your stay there might be less pleasant. But legally they can’t evict you.

But in Manitoba, on the other hand, the Residential Tenancies Branch of Manitoba seems to be taking a different approach. And according to their policies, they take the position that a Bankruptcy doesn’t stay an eviction hearing, basically. So if you’re behind in your rent and the landlord is attempting to have you evicted for those arrears, a Bankruptcy doesn’t help you in that case. 

But the same policy page as listed on their website states that a Consumer Proposal would stay that process. So if you are facing potential eviction because of rent arrears, definitely let your LIT know that if you’re doing a debt consultation or something like that. So that factor can be considered in the process.

Wayne Kay 10:43
See, it’s good to know. And what I like is that this is why we deal with Licensed Insolvency Trustees from each province, because each province is different.

Daniel Maksymchak 10:54
Yes, it is. And this is something that, as you say, is good to have that local knowledge to know about.

So if you’re talking to an LIT, I would say you definitely want to seek out an LIT who’s physically located in the province in which you reside because they’re going to know the intricacies of these legislative differences between the provinces.

Wayne Kay 11:12
Do you see this often? I know I always ask you to generalize, but is this something common when somebody does owe money that they do fall behind on their mortgage or their rent?

Daniel Maksymchak 11:24
No, I would say it’s not common for the reason that that’s usually someone’s number one priority, right, is keeping the roof over their head. So they’re far more likely to let their loan payments slide, their unsecured debt payments or their credit card payments slide, or even utilities, their phone bill, those kinds of things, before they’re going to let the essentials of life slip, like their rent or their mortgage payment, their hydro. They’re not going to let their power get cut off if they can help it. 

So usually people are recognizing that they have financial problems before they get to that point where they can’t make the rent because they’ve let everything else slide to the point where they know they’re in trouble. They call an LIT. Those debts get dealt with through the Proposal or the Bankruptcy, and then they’re able to free up that cash flow, like we spoke earlier, to be able to make their rent before they hit that wall.

Wayne Kay 12:12
Okay, that’s good to know. So what’s your final advice here or some more advice you can share with us regarding renting when you have a bad credit score?

Daniel Maksymchak 12:20
If you’re looking for a place to rent and your credit score isn’t the greatest, there are some steps that you can take to try and reduce the impact of the negative credit score. 

You could potentially, like I said earlier, I think, get positive references from your past landlords stating that you’re able to pay your rent on time. You could provide bank statements or check images showing that you have a historical record of being able to pay your rent on time.

Sometimes it might not hurt to explain the situation. If your poor credit score is because of a Consumer Proposal or a Bankruptcy, you could speak to the potential landlord and say that, yes, your credit score is negative because of this. But hopefully your past landlord was still paid in full, and your financial position has actually improved. And you now have more money to pay your rent going forward because you don’t have any of these other unsecured debts that you’re trying to deal with as well.

You could also seek out potential properties or rental units that don’t require a credit check. So sometimes if they’re small-time landlords, own maybe one or two properties or a suite in their unit that they rent out. They might not have the capacity or the ability or the interest in running credit scores. And then they’re going to rely potentially more on things like your references and your past payment history. Your credit score might not even come into the equation when they’re determining whether you’d be a suitable tenant.

Wayne Kay 13:36
Right, perfect. That’s great advice. Well, thank you so much for being on the show, as always, and giving us this great information on how to deal with these financial situations that do affect a lot of Canadians. Daniel, thanks very much.

Daniel Maksymchak 13:50
Thanks for having me, Wayne. Have a good day.

Wayne Kay 13:51
My guest today was Daniel Maksymchak. You can learn more or schedule a free consultation with LCTaylor Licensed Insolvency Trustee, through the website lctaylor.com. 

Well, that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from. And of course, for more information, you can always check out debtmatters.ca. Thanks for listening.