How does rent default turn into a debt collection? What you need to know before renting your property.

Many landlords and tenants have heard of debt collections before but few understand how the industry works and how rent default can lead to debt collection. We sat down with Greg Maitinsky, the CEO of GoBeyond Collections, to break it all down for us.


What is a debt collection?

The collection of money that is owed by an individual or business to a creditor.

What do collections agencies do?

Creditors hire collections agencies to attempt to collect outstanding debts from consumers for a fee, typically a percentage of the money that is owed. Collections agencies have the ability to list debt collections on consumers credit files.


How would a tenant get a debt collection on their credit file?

In Ontario, if the Landlord Tenant Board makes a decision that a tenant owes a landlord money, this decision is not reported to the credit bureaus; however, if an LTB order becomes a small claims court judgment, it likely will be reflected in the tenants credit file maintained by the major credit bureaus. Landlords can also list an account owed with a collection agency. Collections agencies will reach out to the consumer and ask them to pay the debt. If the debtor does not pay the debt, collections agencies will likely list the unpaid debt with the major credit bureaus.

Landlords will typically engage a collections agency 60 to 90 days after the debt was past due to list the debt with the Credit Bureaus and begin collection efforts.


What negative impacts does having a collection on your credit file have?

Having a collection listed on your credit file will lower your credit score.  If a collections agency is looking for a consumer, they can make an inquiry on your credit file which also lowers your credit score. Consumers are often unaware that they have an outstanding debt until they receive a call from a collections agency.


There are collections scams out there, what should a consumer do to ensure the collections agency calling is legitimate?

If you are unaware of the debt that is mentioned, do some due diligence on the company that is calling. Does this company have a website? Do they have a phone number? If you are aware of the debt, call the creditor and ask if they are using a collections agency to collect the monies owed.


If you have a collection on your credit file, how do you get rid of it?

Consumers should be constantly monitoring their credit by signing up for an account with a credit bureau or services like Credit Karma account so you are aware of any outstanding debts. If you do become aware of an outstanding debt;

    1. Contact the collections agency
    1. Verify the legitimacy of the outstanding debt
    1. Pay the debt if legitimate
  1. If paying is not an option, the consumer could consider bankruptcy to restart with a clean slate


If I am an independent landlord and have outstanding rent owed to me, when should I reach out to a collections agency for assistance?

Always try to settle the account directly with the tenant before going to a collections agency because of the commission that a collections agency takes. Collections agencies commissions range from 25%-50%


If a tenant pays their outstanding debt to a collections agency, is that collection record stricken from their credit file and will it continue to impact their credit score?

Yes and no.

To have a collection removed from a consumers credit file it must be unreported. Some agencies will do this and some will not. Typically if a collections is paid, it will remain on the credit file but it will show that it is has been paid.


One of the main problems in the rental industry is that only unpaid rent is reported to credit bureaus in the form of a collection. The future of the rental industry will involve all payment information to be reported, both positive and negative.  


What impact is technology having on debt collection industry?

    1. Credit Monitoring has been rapidly growing in popularity amongst consumers as companies have begun to provide online credit monitoring services for free.  
    1. Electronic Payments have streamlined the collections process
  1. AI is already being used to optimize collection techniques. AI tools are available that monitor collection calls and report back what techniques are effective and what are not.

Started in 2005, Go Beyond Collections manages about 60% of the debt collections listed by large landlord and property management firms in Canada. If you are interested in learning more about how they can help you, visit their Website.

Learn more about how you can get a Naborly Report on your prospective tenants for free with Naborly.