You found your dream apartment, put in an application, and now your prospective landlord wants to run your credit before approving you as a tenant. Credit is an important part of the rental process and your overall financial well-being. Here’s what you need to know.
What is credit?
In broad terms, your credit history and score tell a potential lender how reliable you are when it comes to paying your bills. In the context of renting, your creditworthiness—or lack thereof—indicates whether your landlord can trust you to pay your rent in full and on time every month. Landlords, banks, and other creditors are taking a financial risk when approving a lease, a loan, or a new line of credit, and they want to know that this risk is relatively low before they work with you.
Why credit matters for renters
The hard truth is that if you have poor or no credit, you may not get the apartment you want, because your prospective landlord may not be willing to risk losing money if you can’t pay your rent. However, there are no hard-and-fast rules about minimum credit scores or the type of credit history renters must demonstrate. Your landlord’s decision may be influenced by a variety of factors: the city you live in, the competition for housing, monthly rent relative to your income, and their experiences with previous tenants.
When you apply for an apartment, be prepared for your prospective landlord to collect a lot of information about you. In addition to your credit score and history, they may consider your current income, your previous rental experience, and references from other landlords. They may ask you for a background check and look you up on social media.
Whether you already have great credit and want to keep it that way, or you are just starting to build your history, there are a few things you should do to set yourself up for financial success as a renter.
Request your credit report and be proactive with results
You can request a free copy of your credit report, once a year, from each of the three major credit bureaus —Experian, Equifax, and TransUnion—through the only official government-sponsored website, annualcreditreport.com. You’ll have to pay for more frequent reports. Many credit card companies and financial services provide free credit score reporting to customers, though you can also purchase your score and reports directly from VantageScore and FICO.
Though both models use similar criteria to determine your score, they collect and weight their data differently, and lenders may use one or both when considering creditworthiness.
Once you receive your reports, review them carefully to ensure your personal and account information is correct. Credit reporting isn’t perfect, and it’s best to act quickly on any mistakes or outstanding debts, especially if they’ve been sent to collection agencies. Dispute errors and request that a corrected report be sent to lenders who have received it recently.
Sign up for credit monitoring
The best way to stay on top of any irregularities or unexpected dings—bills that were sent to an old address and have become delinquent, for example—is to use a credit-monitoring service. A number of services provide more frequent monitoring of your credit report from all three credit bureaus and alert you to any problems. Some also include identity theft protection, an important feature to consider given recent data breaches.
Build credit slowly and responsibly
If your credit history is poor, take it one step at a time. Frances Williams, a senior credit advisor at 123 Credit Consultants, recommends starting with a secured credit card that has a low credit limit. Open the account with at least a $200 deposit—for many cards, your deposit is equal to your limit—charge only a small percentage of your total available credit, and pay the bill on time.
Building credit is not as simple as signing up for a bunch of cards and accounts, however. You must use different forms and use them responsibly. Andrew Rombach of LendEDU notes that car and student loan payments made on time also count toward a positive credit history.
Report your rent payments to a credit agency
Your rent payments can provide another boost to your credit if you report them. If you’re paying rent using Cozy, you can choose to have these payments reported to Experian RentBureau for free. That means you can improve or build your credit history just by paying your rent.
Building credit while you rent also sets you up for homeownership in the future, when you’ll need good credit to get a mortgage.
Pay on time and in full
“It can take years for black marks like chargeoffs, collection accounts, and late payments to be removed from your credit report, and it can take months, or even years, for your credit score to recover,” says Tim Manni, a home expert at NerdWallet.
In addition, if you make only the minimum required payment each month, you’ll end up owing a significant amount in interest. Pay off your statement balance—and up to your full account balance—before the due date.
In addition to on-time payments, the number of credit account types you hold and the average age of those accounts also impact on your score. Late payments can quickly sink your score, and the later you are, and the more payments you miss, the worse it gets.
Stay on top of bill due dates
While on-time utility, cell phone, and cable bill payments generally aren’t reported to credit agencies and won’t directly impact your score, falling behind can cause your credit to suffer. If you get overwhelmed managing your bills, set up automatic payments. You can also call your credit card companies and adjust those due dates around when you get paid or write your rent check.
You have options if you’re still building credit
If you have a low credit score, limited credit history, or have already been denied on an apartment application, don’t despair. If a parent or relative with stronger credit co-signs your lease and takes financial responsibility for your commitment, that will often satisfy a landlord’s requirements.
If you have savings stashed away but are still working on boosting your credit, offer to pay an extra month or two of rent upfront as a good-faith gesture. Provide references from previous landlords if you were a respectful tenant who paid rent on time, or submit proof of income and other financial assets. Finally, some landlords may not check credit at all, so ask about the application process before you move forward.