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How Canadians with bad credit can get a foot into the rental housing market

Landlords can't ask for a security deposit in Ontario and Quebec (Getty Images)
Landlords can't ask for a security deposit in Ontario and Quebec. (Getty Images)

A combination of high debt and low credit scores is leaving a lot of renters locked out of competitive rental markets in Canada.

Canada housing and mortgage corporation (CMCH) says you should check your credit score before heading out to look at rental properties.

The agency suggests using free mailing tools provided by Equifax Canada and Trans Union, or Equifax’s online pay-per-use version.

Your file will contain information on credit use, payment dates, past addresses, and previous employers.

Good credit can be established by applying for a credit card, taking out a loan, on-time bill payments, and paying the minimum balance on credit cards every month.

CMHC says guarantors can help assume the risk if you fail to pay rent. The guarantor can be a friend or a family member.

Finding a guarantor

If you don’t have someone in your life to fill that role, Locnest helps tenants by acting as a guarantor.

This first-of-its-kind service in Canada can help cover the security deposit on your behalf, but also steps in if the tenant misses rent or causes damage to a property.

The lease guarantee covers between $400 and $5,000 for an eight per cent fee.

Roger Giger, managing director of Locnest, says his company works with a variety of tenants, including ones with no credit history like immigrants and students.

“Because of this, they face many difficulties finding a home to rent,” Giger told Yahoo Finance Canada.

“With our vetting process, we are able to look at other financial factors to determine whether or not we can approve these individuals.”

Giger says Locnest also helps people get back on their feet after they’ve hit a rough patch.

“We know bad things can happen to good people, so if we can see someone has the funds and they are doing everything right to rebuild their credit, we will vouch for them,” he said.

“In fact, they often make the best tenants and clients because they are so determined to get things back on track.”

Peace of mind for landlords

Locnest can help make life easier for landlords, too. Worrying about rent payments and what tenants might do to the property can take its toll.

Tegan Martin-Drysdale, president of RedBrick Group, says a number of tenants in her buildings use the service.

“Lowering stress for tenants helps build a strong relationship, and the security Locnest provides us as landlords helps take stress and worry off our minds,” Martin-Drysdale told Yahoo Finance Canada.

“If something does happen to go wrong, we don't have to chase tenants for payments. Locnest will take care of that process for us so we can focus on what truly matters, providing the best quality property management services for our tenants as possible.”

Not for everyone

William Blake, a landlord with properties in Ontario, Alberta, and B.C., says he would like to see companies like Locnest work with landlord and tenant groups.

For now, he says Locnest isn’t for him.

“I would prefer not to work with a third party when renting to a tenant,” Blake told Yahoo Finance Canada.

“A third party just adds more complications and risks for me, for example, what if the company closes?”

Blake also urges Locnest to ensure landlords aren’t using the service as a discriminatory screening process.

Giger says his landlords can suggest Locnest, but can’t require a tenant use it.

“We have a service that aims to help keep everyone honest. Of course, as with anything involving other people, we can’t control how a landlord uses it,” said Giger.

“Locnest is not intended, however, as a barrier to access, and in fact, if that is how a landlord is using it, we would not want to partner with them in the future and they would be subject to review. That is against what we stand for.”

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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