Ami Reiss Insights: Credit Building Tips for Renting in a Catch-22 Housing Market

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Credit Building Tips for Renting

Each year, new graduates learn a lesson that wasn’t part of the college curriculum – the reality that entrance to many professions is governed by an exasperating Catch-22. Hoping to gain that first level of experience, they find that the primary requirement for entry is the experience they seek.

For first-time tenants, renting can be a bit like that too. Finding a place of your own for the very first time is exciting, but for many applicants there are requirements that seem to assume a career longevity, level of income and stability that are typical of older tenants.

Income requirements are one example. For someone starting out, entry-level salaries are typical. But the algorithms of tenants screening services aren’t very forgiving when it comes to an income requirement, which can run as high as three times the monthly rent. New renters may also lack a stable address history and solid landlord references (Mom and Dad won’t count).

But perhaps the biggest obstacle is credit history. Over the past few decades, credit requirements have tightened across the U.S. and Canada. Once, an unpaid bill that became a collection account might have been seen as no big deal. But in 2023, that old overdue account can be a red flag for a potential landlord. Plus, it can weigh down your overall credit score for years.

Canadian real estate investor Ami Reiss has analyzed this issue from both sides. As the manager of a range of quality rentals in the Montreal area, he knows what landlords are looking for and what rental applicants must overcome to find a home at a price they want, in a place they want to live. His expertise has made him a go-to source for property owners, building managers, investors and tenants who want to understand the state and trajectory of the housing market, in Canada and beyond.

Credit score improvement requires one basic element, says Ami Reiss: time. There are no quick fixes to a credit history that is too short or sub-par. But there are active steps you can take to make significant improvements to your credit status, Reiss adds. For example:

Start creating a rental and credit history with temporary accommodations.

Use this time to establish and build credit, as well as accumulating landlord references. Sharing a home or subletting from someone with good credit is a good option.

Ask a family member to be a guarantor.

A guarantor agrees to assume your financial obligations if you are unable or unwilling to. This gives landlords peace of mind, as they know they will be paid rent that is due, either by you or your guarantor in the case of a default.

Build savings.

Win over skeptical landlords by offering to pay a larger security deposit, or accumulating a substantial savings account that will show a landlord you have the means to afford a rental.

Consider living in your second- or third-choice location as a first step.

Not surprisingly, the neighborhoods that are most in demand have the strictest rental requirements. If you find it hard to rent in downtown Montreal, where all the action is, try a quieter suburb along a Metro line. There’s likely to be less competition there; and as a result landlords will typically be more accommodating to prospective tenants with short credit and rental histories.

Understand the basics of good credit

Understand the basics of good credit.

As you employ strategies that can buy you some time while you build a stellar credit history, remember to focus on the fundamentals that will send your score soaring over time. Apply for a small number of quality credit cards, and if possible add a car loan to the mix. Keep the cards you may already have, as length of a credit line has a substantial impact on your credit score. Don’t carry large balances on your cards or make too many applications. And most importantly of all, as Ami Reiss notes: Pay your bills on time, consistently.