Borrowell’s Rent Advantage is the latest example of a fintech using technology and a fresh perspective to solve a longstanding imbalance in the credit markets.
Launched on July 19, Rent Advantage lets renters report their monthly payments to Canada’s largest credit bureau. The process does not require landlord involvement.
Co-founder and CEO Andrew Graham said Rent Advantage allows renters to build their credit history through their monthly payments, just like people with mortgage payments can. Payment history is the most significant factor in determining someone’s credit rating. The higher the rating, the more options people have to borrow. Those options are more likely to have lower rates attached.
Current market conditions conducive to Rent Advantage
The timing of this release is fortuitous, as many people have delayed buying a home due to soaring prices, Graham said. More people renting for extended periods means a better opportunity to improve credit ratings through rent payments. As the market begins to cool, home shoppers have scores that allow them to take the leap to homeownership when the time is right.
Graham explained that it doesn’t take much for people to avail themselves of better rates. In Canada, 32% of households identify as renters, but that number more than doubles to 68% for those with credit scores below 660. Access to better rates can happen with scores between 660-680. Someone with mortgage activity on the credit file sees an average 100-plus-point
“We want to make the credit system work better for underserved Canadians. This program was built with renters in mind and allows them to use payments they’re already making to build a credit history so they may qualify for more financial products at better rates in the future,” said Graham. “Tenants who demonstrate good payment behavior should be able to benefit from those actions, the same way a homeowner paying a mortgage would.”
Renters sign up with Borrowell and connect the bank account they use to make their rent payments. The monthly service fee is $5 and can be canceled anytime. The longer Rent Advantage is used, the more benefit it will have, given the significant relationship between solid payment histories and credit ratings.
The marketing plan begins with making Rent Advantage available to Borrowell’s two million customers, many of whom are renters.
How Rent Advantage addresses the disparity between renters and owners
“Most people without a mortgage trade are renters,” Graham said. “And that’s a great indication of one of the challenges a renter faces: building credit and getting credit for making payments on time.
“It’s just an unfortunate unfairness in the current credit system that if you make a mortgage payment on time, that gets added to your credit file, but rent is largely invisible. And so we wanted to fix that. And that’s what this product does.”
Borrowell has an established relationship with Equifax. The two have discussed how to develop Rent Advantage for some time. A focus was on ensuring a high-quality data stream Equifax could rely on.
Graham said an early decision was to leave landlords out of the equation. Many of them are smaller and don’t want the hassle. Some renters have uneasy relationships with their landlords. The solution was to connect the bank account or credit card the renter uses to make payments. Once Borrowell accounted for unique use cases like split payments and secondary accounts, they were ready to go.
Open banking and how fintechs can continue to help renters
“The tensions in this country between renters and homeowners are real,” Graham said. “It’s only getting harder for a renter to get into the housing market. So this really struck a chord.”
Graham said continued improvements in fintech could help foster more programs like Rent Advantage. Borrowell is involved in the Government of Canada’s open banking discussions, with Rent Advantage being a perfect example of why the country needs a robust open banking network. It makes such products easier to use.
Graham concluded that continued growth in fintech and more people renting for extended periods drive further innovation.
“I think there are lots of interesting services being developed for renters, especially as more and more people decide or the market decides for them that they’re going to be renters for the long term. This is a really important service, but I think other services are particular to renters.
“I think that’s a really interesting area of fintech. As we head into more challenging economic conditions, there are going to be more and more consumers that are going to be looking for help with their finances. That’s a big opportunity for a company like ours and other companies in fintech to be useful. In a time when there’s economic uncertainty or economic dislocation, there are many opportunities to be helpful.”
Rent Advantage will be available to a selection of Borrowell members starting July 2022 and will be expanded to the public later this year. Interested consumers can sign up for the waitlist on borrowell.com/rent-advantage.