Ah, it’s a conundrum, isn’t it? You can’t afford to buy but you can’t find a landlord willing to rent to you because of bad credit. This is a question we’ve been asked a lot lately by readers and would-be tenants calling into the office – can you find me a Toronto apartment for rent that isn’t reliant on having a decent credit score?
If you have bad credit, you’re not alone. It’s a widespread issue and with the low-cost of credit these days, it could become an even bigger issue as it’s all too easy for people to leverage themselves too high. And it’s non-discriminatory in terms of who’s at risk. It’s not just people who fall into a low-income bracket who can have bad credit scores – people with healthy incomes can have too much money tied up in assets with very little cash flow, leading to missed loan payments and, eventually, a poor credit score.
As well, if you’re young and just starting out or you’re new to Canada, you may have no credit history at all on file making it just as difficult to rent as someone with a history of missing loan payments.
It’s similar to the situation we see with some buyers looking at condos for sale in Toronto who have healthy down-payments but a poor credit history, making it difficult for them to secure a mortgage. Even something as simple as an untraditional job without three years of income tax statements to back it up (for example, you recently left a permanent position in a company to freelance) may make you high risk in lenders’ eyes.
So what’s a renter to do? Here’s what you need to know about securing a Toronto apartment for rent with bad credit.
Applying to Rent a Toronto Apartment: Is it Legal for a Landlord to Ask for My Credit History?
Firstly, let’s establish the fact that it is perfectly legal for a landlord to request this kind of information. And so unfortunately, it’s not something you can get out of if you hope to rent an apartment. The Landlord and Tenant Board website states:
“…when choosing a new tenant, a landlord can ask the person applying for the rental unit to provide information such as current residence, rental history, employment history, personal references and income information.”
This includes the right to conduct a credit background check and to refuse a tenant who they consider to be a risk.
First Step: Check Your Credit Score And Ensure There Are No Errors
The first step we recommend you take is to know your credit rating before you start looking for Toronto rentals. Even if you’ve done a check in the past, it doesn’t cost a lot to do another. You should do one annually if you’re struggling with credit in order to:
a) ensure it reflects your current situation (credit scores change as your activity changes), and
b) take the opportunity to review your history closely as mistakes can be made. There could be errors on your file or omissions that could help build a positive credit profile that you can fix and use to improve your rating.
The Canadian Mortgage and Housing Corporation website outlines the importance of checking your credit score with a list of resources on how to do so.
X Condos, Unit 3411, currently for rent.
Your Options for Securing a Toronto Apartment for Rent With Poor Credit
If your credit score is poor, there are a few things you can do to secure a Toronto rental short of hoping that your prospective landlord will skip the credit check stage (which does happen by the way but in today’s competitive rental market, you don’t want to rely on luck alone). Your best options are to:
#1 Find a Guarantor or Co-Signer
This is the easiest solution providing you have a close contact with a good credit score who is willing to co-sign your rental agreement and/or act as a guarantor. Most often this is the applicant’s parent(s) or another family member.
A co-signer essentially shares in full the obligations of the rental agreement and co-signs the agreement with you whereas a guarantor is guaranteeing that they will ensure you meet the obligations. The latter is generally a separate legal document that references the tenancy agreement. The key difference practically speaking is that a co-signer is immediately responsibility for missed payments and therefore more attractive as a form of “insurance” to prospective landlords whereas a guarantor is only financially liable after the landlord has exhausted all possible means of getting the money from the tenant.
While often the quickest and easiest solution, it is in both of your best interests to ensure that the co-signer or guarantor fully understands the responsibility he or she is taking on. For example, if you fail to meet your rent or any other financial obligation (for example, causing property or contents damage where you owe the landlord money to resolve), a co-signer is legally responsible for paying that sum immediately to the landlord.
It can be a huge financial responsibility and if your co-signer refuses or is also unable to pay what’s owed, your landlord can sue you both. So make sure that you’re a responsible tenant and that you don’t put your co-signer or guarantor at risk.
If you are not positive that you can make regular rental payments, think hard about getting into a long-term lease agreement and potentially putting both yourself and your co-signer / guarantor into legal and financial hot water.
Balcony of Townhouse Unit 7 at The Bentley, currently for rent.
#2 Find a Roommate with Good Credit to Assume the Risk
This option involves having another party assume full risk on the rental agreement by being the sole signatory. This means that the signatory is responsible for the full rent to the landlord regardless of whatever verbal or written agreement they have in place with you.
This is in essence a type of sublet where they are agreeing with the landlord to cover the full rent each month and then separately, they are subleasing a room / portion of the apartment to you. The difference between this and a traditional sublet is that they are remaining on as an onsite tenant, sharing the premises with you.
This is a good option if you know your prospective roommate well but it can be risky if you’re moving in with people you don’t know, particularly if they don’t put a formal sublet agreement on paper with you giving you some rights.
If you go this route, you must be open and honest with your landlord from the get-go so that they know there are two or more of you moving into the apartment despite having only one name on the lease. There are limits to how many people will be allowed under one roof but generally speaking, as we covered in a previous article on things tenants should know, a landlord cannot prevent their tenant from subletting providing certain conditions are met as outlined on the Ontario Tenants’ Rights website. But unauthorized tenancy is illegal and the landlord could kick you out if you don’t do this above board, with their consent.
Westside Gallery Lofts, Unit 1811, currently for rent.
#3 Be Honest and Provide Positive References
Honesty really is the best policy when it comes to developing a good relationship with your landlord. Landlords generally want the same things in a tenant – someone who pays their rent on time, is clean, quiet and respectful of the property and neighbours, and who is easy to deal with if and when issues arise. And when a landlord finds a good tenant, they try to hold onto them for as long as possible.
Just because you have a bad credit rating doesn’t mean you’ll miss payments or be a bad tenant. Sure, there is more risk involved for a landlord in renting to a tenant with poor credit history and if it’s a competitive situation, an applicant with good credit will likely trump you as a more suitable candidate.
However, if you present yourself well, are upfront about your credit situation and what you’re doing to resolve it, and give positive references from a previous landlord(s), your employer and if possible, your bank or credit card company (who can vouch that you are on track for improving your situation), a landlord may willing to forget about the credit report and give a hardworking and honest person a break.
#4 Wait and Get Your Credit Score Back Up
If all else fails, you may unfortunately have to wait it out in your current living situation until you can improve your credit score, presenting as a better candidate for rental properties moving forward.
Improving your credit score really isn’t rocket science – it’s about paying down your debt and paying all bills on time, in total wherever possible but at least the required minimum payment. But it does take time.
To learn more about how to improve your credit rating, check out this article by our friends over at Ratehub.ca.
Proceed With Caution Tactics: Paying More in Advance
There are some tactics that can put you and/or the landlord at risk such as offering a higher deposit or paying for six months or a full year in advance of moving in. This is actually in breach of the Ontario Residential Tenancies Act which is the law in this province.
We know of a situation where a landlord denied an application from a prospective tenant who had bad credit. But the tenant was persistent, claiming he was doing everything to get his credit back on track and that cash flow wasn’t the issue. He independently offered the landlord a full year of rent upfront to close the deal, which the landlord accepted.
Upon moving in on day 1, the tenant called the Landlord and Tenant Board (the party appointed by the Ministry to enforce the Tenancies Act) claiming that he felt coerced into the “overpayment” and that he didn’t at the time understand the law.
The landlord was ordered to repay the funds in full with the exception of first and last month’s rent and was left with a blemish on his record and a tenant that he didn’t trust when he had other applicants he could’ve rented to. And the tenant can kiss goodbye any hope of a positive reference letter for his next rental transaction.
In this case, it’s the landlord’s fault, frankly, for acting outside of the law. You can see why it makes landlords skittish to agree to atypical terms or “good-faith” / “handshake” agreements and so finding one who will may prove difficult. At the end of the day though, there’s no policing of what agreements are made between individual, private landlords and their tenants unless a formal complaint is lodged by either party. And while a landlord cannot ask for more than first and last, you can offer it.
But know that any time you’re acting outside of the law, both parties are put at risk for what should be a positive event in your life – finding a great new apartment to call home.
Lead image © Ivelin Radkov, Shutterstock.