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When to Accept a Cosigner on a Lease

Cosigners (also called Guarantors) are a great risk reduction tool that many landlords shy away from, but it's a proven tool in reducing risk and defaults.

Credit scores are only effective risk tools if the prospective tenant has built up credit to report on. International professionals, young students, and new immigrants are all at a disadvantage with traditional credit scores. There is a widening body of research on how credit scores alone disproportionately impact young people and communities of color. How do landlords ensure equity? Simple - use more than a simple credit score!

Making sense of income levels and credit scores

Back in the day, 30% of rent was the general rule of thumb for how much of a person’s income should be spent on rent. That number is still a great goal, but for renters nowadays, that is not reality (47% of renters in Canada's biggest cities struggle with rent being 50%+ of their income). With that in mind, it’s worth thinking about what actually is an acceptable level of income for a rental, and when a cosigner could be considered.

Credit scores show us someone’s history - that's it. A much better way to review a prospective tenant is to analyze cash flow data: which is exactly what Naborly does. Studies suggest that the most effective way to reduce bias in credit scoring is to also include income verification and current cash flow analysis.

So why would I take a cosigner?

If your property is near a college or university and you aren't considering renting to students - you may be missing out on a rich tenant pool.

If your property is near a teaching hospital or long-term care facility, often there are international nurses and PSWs that don't have a credit history in this country. Their stable income with a guarantor however could make them an ideal tenant.

Steps to take when accepting a cosigner.

  1. Do your research on the cosigner/guarantor. Are they a family member? Are they local? 

  2. Confirm you can contact the cosigner. With the Naborly application, your tenant can add a cosigner automatically and we'll reach out for you!

  3. Go through the contract with the cosigner. It's best practice to ensure you have clearly stipulated in the lease the guarantor's responsibilties.

Keep your mind open as a landlord - great tenants are so much MORE than just a credit score!

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