What Should Landlords Look for in A Tenant Credit Report?

how to read a credit report for landlords

Being a landlord in today’s rental market requires diligence and experience. To avoid leasing their units to risky tenants, most landlords rely on tenant credit checks — it’s a foundational part of the tenant screening process. While these checks are very insightful, even seasoned landlords can overlook important information.

SingleKey offers a great way for landlords to screen tenants via our Tenant Credit & Background Check. We have helped landlords across Canada screen and verify thousands of prospective tenants, providing them with insights to help them make renting risk-free and hassle-free. To help landlords learn how to read the SingleKey tenant screening report, we’ll review the top 5 tenant credit check metrics.

how to read a credit report for landlords

Don’t forget to check out our sample tenant credit check report. We’ll be using it as a reference throughout this article.

How to Read a Credit Report for Landlords: 5 Key Tips

  1. Learn the Difference Between Poor, Good, and Great Credit Scores

The first risk indicator landlords typically review is the credit score. SingleKey uses an Equifax ER 2.0 score to create an accurate picture of the tenant’s financial health. A credit score is a useful metric encompassing the entire spectrum of a prospective tenant’s financial standing, including: 

      • Payment Behavior
      • Debt 
      • Income
      • Outstanding Debt
      • Late Payments

The average Canadian has a credit score of 630. So tenants with a score ranging from 600 to 700 are considered to have an average score. When reviewing rental applicants with a score below 600, landlords may want to look more carefully. A credit score below 500 is likely due to poor payment behaviour or a recent bankruptcy, indicating the riskiest applicants. 

tenant credit report for landlords

While a low credit score doesn’t mean that a tenant will be delinquent on rent, we can safely make the assumption that a tenant who doesn’t pay their bills on time is more likely to not pay their rent on time.

  1. Identify the Types of Debt the Tenant Owes

Another key piece of information on our tenant credit reports is debt. While large amounts of any debt aren’t a great sign, it’s important to understand that not all debt is created equally.

High-Interest Debt

landlord-tenant-credit-checks

Credit cards and risky loan options, such as payday loans, are high-risk debt because of their higher interest rates. Also, payday loans are often the last resort for borrowers and can indicate the tenant may be going through financial hardship.

Low-Interest Debt

On the other hand, debt categories like mortgages and HELOCs (Home Equity Lines of Credit) are significantly less risky because of the lower interest rates and the asset securing the loan. Also, individuals can rent out their property to cover the mortgage payment. 

Student debt and car payments are forms of debt that aren’t as risky as credit cards or payday loan debt. What is important here is whether the applicant has been able to make regular payments.

  1. Tally Up the Total Monthly Debt Payments

Credit reports outline the number of regular payments that a person has to pay towards items such as an auto loan, credit card, or cell phone. It is important to review these monthly payments because they show the portion of the applicant’s income going towards recurring expenses and bills.

For example, in SingleKey’s sample credit report, the “Payment Term Amount” shows how much money is to be paid, while the “Narrative” explains the frequency of payments.

tenant monthly debt payments

To give you a real-world example, if the applicant’s pre-tax income is $3000 per month but they have to pay $1000 towards their credit card and car loan payments every month, this doesn’t leave much behind to cover rent and living expenses.

  1. Calculate the Rent-to-Income Ratio

It’s important to know if the tenant can actually afford the expense of renting a unit. A landlord should consider how the tenant’s monthly income compares to how much they will have to pay for monthly rent. To simplify the process, SingleKey’s tenant credit report calculates the rent-to-income ratio so you won’t have to worry about it.

Looking at the tenant’s rent-to-income ratio gives you a good sense of affordability. If they make $3000 per month, but are applying for a unit where the rent is $2000 per month — that’s a red flag.  

We also suggest going one step further and using the (rent + debt payments) to income ratio. With this formula, both their monthly debt payments and their rent are used to get a better grasp on how much they can really afford. 

Our data shows affordability is one of the top predictors of tenant rent default. If a tenant is spending more than 50% of their income on rent, there won’t be much left to save for a rainy day. In this scenario,unexpected expenses or job loss would cause the tenant to stop paying rent.

  1. Focus on Collections and Bankruptcies

Collection items and bankruptcy demonstrate financial responsibility, and remain on a credit report for 6 years and have a significant impact on credit scores. Collections and bankruptcy can happen, but it’s important to ask the right questions when you see them on a tenant’s credit report.

1. What was the amount owing?

The amount owing is an important factor in determining how detrimental the outstanding payment is to the applicant.

2. How old is the default?

In cases where a bankruptcy occurred 5 years ago, that is not nearly as important as when the bankruptcy is fresh. The older the bankruptcy, the less financial strain the applicant is under. 

3. What type of debt was it?

If a collections item is for a payday loan, that is much more worrisome than if it was an outstanding phone bill.

Collection items and bankruptcy demonstrate financial responsibility, and remain on a credit report for 6 years and have a significant impact on credit scores. Collections and bankruptcy can happen, but it’s important to ask the right questions when you see them on a tenant’s credit report.

KEY TAKEAWAYS

The 5 Things Landlords Should Look Out for on a Tenant Credit Check

  1. Credit Score
  2. Amount of Debt and Type of Debt
  3. Monthly Debt Payments
  4. Rent-to-Income Ratio
  5. Collections and Bankruptcy

Find the Right Applicant with Single Key’s Tenant Credit Report

Being smart with your tenant screening process keeps your renting risk-free. A good tenant will not only have a stable income, but they’ll have a reassuring financial history. Keeping in mind the 5 key risk indicators in this guide will help you get the most out of your tenant credit report and raise any red flags that you should be aware of. 

If you are looking for the best tool to screen your tenants, consider the SingleKey Tenant Credit and Background Check report. The five metrics we just reviewed are at the top of every report. 

Don’t forget that we also offer a free tenant review call to help walk you through the tenant report results, so book a call with us any time.

The New Ontario Standard Lease Agreement – 5 Things Every Landlord Should Know

New ontario lease agreement templates

The New Ontario Standard Lease Agreement – 5 Things Every Landlord Should Know

Since April 2018, a standard lease agreement template was available from the Ontario government for landlords across the province. When complete, the standard lease creates a contract between the landlord and tenant. It is also called a residential tenancy agreement.

However, this standard residential tenancy agreement in Ontario was not mandatory and could be modified and altered by landlords, and such modifications and amendments were common practice. 

In December 2020, the Ontario government released an updated standard lease agreement template to account for RTA changes that were introduced in July 2020 by Bill 184

This new standard lease will require landlords to use 15 standard clauses and limits their ability to amend, disregard and add new clauses to the contract, limiting their ability to negotiate with the tenant.

What is the point of this new Ontario
lease agreement?

The point of the new lease agreement is to prevent residential landlords from including illegal and therefore, unenforceable clauses in the standard lease agreements. The intention was to create a standard framework that both large and small landlords could use. 

The new lease template also makes things more transparent, and clearer between landlords and tenants because now, both parties will be familiar with what is in the document, where to find the total rent, what is included and excluded from the tenancy agreement. 

Additionally, the new residential tenancy agreement seeks to introduce the changes made by Bill 184

Ultimately, the new Ontario residential tenancy agreement is an attempt at levelling the playing field between landlords and tenants since there’s an otherwise unbalanced rental market due to the giant gap in negotiating powers between both parties.

5 Things to Know about the New
Ontario Standard Lease

01

Changes to the new Ontario
standard lease agreement

There are practical changes that will take effect with the new Ontario lease agreement in 2021.

Requesting a copy of the lease

The new lease agreement includes a provision that says a tenant can request a copy of the lease agreement from the landlord. If the landlord does not supply the lease agreement to the tenant within 21 days, the tenant can withhold 1 month’s rent. If the landlord does not produce it after 1 month, the tenant does not have to pay the landlord that outstanding months’ rent. Where the landlord never gives the tenant a copy of the lease agreement, the tenant can terminate the lease agreement by serving the landlord with 60 days’ notice.

No alteration

Landlords can no longer alter or change the new template. The new agreement contains 15 mandatory sections that must be included in the agreement and cannot be removed or altered in any way. The purpose of this is to prohibit landlords from making unfair changes or assigning illegal clauses that apply to the tenant.

Additional Terms Section

There is a section at the end of the lease agreement that allows landlords to attach documents with additional terms. Here landlords can add additional terms to the lease agreement but only with the tenant’s consent. It is important to note that where there is any inconsistency with the standard 14 clauses in the new lease agreement, the standard clauses will take precedence over any terms added by the landlord, which, in the case of conflict or overlap, will be viewed as illegal and therefore void. This is different from the approach seen in the previous rental agreement form because now this is the only section where landlords can add additional terms.

updated ontario lease agreement

Increased fines for landlords

As enacted by Bill 184, this new lease includes an increase in fines issued to landlords if they evict tenants unlawfully or give notices of termination in bad faith. Part D outlines the increased fines payable by landlords where landlords unlawfully evict tenants. If convicted, an individual landlord could face fines of up to $50,000.

Other changes to the Ontario rental agreement form

Along with these significant updates to the standard lease, the following is further clarified in this new form:
 
1. Landlords no longer have to serve new tenants with the “electricity consumption” form for sub-metered units.
2. Additional grounds for ending tenancy added in Part D including for landlord’s own use.
3. If a tenant rents the entire unit to a third party (e.g. Airbnb), that person is not considered a “guest” and the landlord’s permission may be required.
4. The “Post November 15, 2018” rent control exemptions are now clarified in Part I.

The most significant updates to the new Ontario standard lease agreement are:

  • Tenants can request a copy of the lease agreement from the landlord and can withhold rent if the landlord doesn’t provide it.
  • Landlords can no longer alter or modify the standard lease agreement.
  • A new “additional terms” section allows landlords to add further clauses and documents to the rental agreement, with the tenant’s consent. However, the main 15 clauses take precedence over these additional terms.
  • Increase in fines issues to landlords if they evict tenants unlawfully or give notices of termination in bad faith.

02

What properties does this new Ontario
standard lease agreement apply to?

The new lease agreement applies to all residential units in Ontario. This includes but is not restricted to condos, houses, basement units, and apartments. Those exempt from the Residential Tenancies Act are not required to use this new lease format. This includes care homes, mobile home parks, lease communities and most social housing.

03

When does the new Ontario standard lease
agreement take effect?

The new Ontario lease takes effect on March 1st, 2021

This does not mean that landlords and tenants who have already signed a lease agreement before this date are required to sign a new lease. 

Until February 28th, 2021, landlords and tenants can use the old version of the standard lease agreement and it will remain valid. However, it is important to note that any clauses in the lease agreement that are not standard clauses or are clauses that may appear to be illegal in nature, will automatically become void as of March 1st. This could mean that any clauses added within the body of the lease (and not within the “additional terms” section) could automatically become void as they would not abide by the new rules.

04

What might happen if I am not using the
new Ontario standard lease agreement?

It’s important for landlords to know that any lease agreement made prior to March 1st will be permitted to remain effective and will not automatically become void. This is good news because landlords will not be required to re-sign their already existing tenants to a new lease.

Additionally, there are no penalties given by the Residential Tenancy Act, and by extension, the LTB, for landlords who do not properly use the standard lease. However, landlords should be aware that where there is a failure to use the proper form, the tenant can possibly break a fixed-term lease early. So it’s best to start using the new standard lease template before the March 1st deadline.

05

Where can I find a copy of the new Ontario
standard lease agreement?

If you are interested in finding a copy of the new Ontario standard lease agreement that takes effect in March 1st 2021, please visit SingleKey Lease Templates to find a downloadable copy of the lease agreement.

Not ready to sign a lease yet? Put your mind at ease by screening prospects using a Tenant Report, or guaranteeing your rent.

Contact us at info@singlekey.comto learn more.