Renting a Home With Bad Credit
There's no avoiding the fact that low credit scores can hamper your access to some apartment buildings and rental homes. Low credit scores can result in both from youth (i.e., you're young and have "new" credit) and, regardless of age, from your credit behavior. Depending on why you've got a low score, you can work to build your numbers — and also take steps to win over concerned landlords. When borrowing to buy a home, the lower the score the more you may pay in fees to finance your home purchase. But when renting a home, a low score can't cost you more in rent — a landlord will either work with you or they won't. Here are a few steps to take before renting.
Check Your Credit Reports
So, how bad is your credit? The three major credit bureaus are legally required to let you view your credit reports for free once annually. (For a nominal fee, you can look more often.) Credit reports include your name (and aliases), address, employers, Social Security number and a list of accounts that will include revolving debt (where your minimum monthly payment isn't required to pay off the total debt balance) and installment debt (where you're on a set payment plan until the line of credit or loan is entirely paid off). Also included are judgments, unpaid child support, account collections activity and foreclosure or bankruptcy proceedings. When you apply for further credit or loans it shows up on your report (and impacts your score), but when others (i.e., marketers) ask to see your credit in advance of marketing credit to you that's a "soft" request that doesn't impact your score.
You can get all three reports at once via Annual Credit Report or go through the major credit reporting agencies, which are Equifax, Experian
Short History: Establish Your Credit
If you haven't used a credit card or have misused a credit card, you may need to establish lines of credit so you can demonstrate that you can use them responsibly. Start with a credit card at your bank, a pre-paid card (where you load up a balance with your own money and then decline and reload the balance over time) or a single-store card. Then graduate to one of the general-use credit cards.
Separately from establishing these lines of credit, in recent years credit bureaus have begun tracking on-time rental payments. Experian, through its Experian RentBureau product, works with major property management companies to track on-time payments by renters. Ask your landlord or management company if they're participating in the program. If they're not, consider working on your own behalf to get your rental payments tracked. You can do that with RentReporters, which will track your rental payments and get them added onto your credit report, provided your landlord isn't a relative or roommate. There is a set-up fee and a monthly fee (about $6), but if building credit is important it may be worth it to you. Separately, RentReporters gives consumers the power to fetch up to 12 or 24 months' worth of historic on-time rental payment data for inclusion in credit reports, for less than $30.
What Can You Do to Offset Spotty Credit?
Unfortunately, cleaning up your credit and your credit report is rarely a quick-fix endeavor. However, if you've got some time in front of you, the most on-time payments and overall debt reduction you can demonstrate the better. According to Fair Isaac's myFICO consumer site, scores are weighted according to the following elements within your credit reports:
- Payment history (35 percent): Have you paid on time or late, and on how many accounts? If late, how late (30, 60, 90 days) were you? For how much were you late? How long since you were last late, and on how many accounts? Which accounts have you paid on time?
Totalamount owed (30 percent): What proportion or percentage of total credit available to you are you actually using? What proportion or percentage of credit, by credit type, is in use? Are balances at the maximum or minimum? Which accounts have balances?
- Length of credit history (15 percent): How recently were your accounts opened? How long have you had to demonstrate responsibility with these accounts and with certain account types?
- New credit (10 percent): Have you been shopping for and applying for more credit or loans? What proportion of your credit lines and loans are newer?
- Type of credit in use (10 percent): What type of credit are you most often using? Are you mainly repaying a loan and occasionally using a charge card, or do you display other patterns?
What Can You Tell a Landlord to Convince Them?
Got a low score or short credit history? These approaches may help win over a skeptical landlord.
- Max out the security deposit. Many landlords will ask for a higher deposit if credit is poor.
- Bring references. Former landlords who will tell your future landlord what a model tenant you are gold when you have a low credit score.
- Try a trial period: Propose a three- or six-month lease, to prove you can make the rent.
- Get a guarantor. Find someone you trust (and who's better off!) to co-sign. Keep in mind that they'll need to have a financial profile that you lack, i.e., sufficient income, credit, etc. At lease renewal, you can see if it's possible to wean yourself off the need for a guarantor on the new lease.
- Rent with a roommate. If you can share space with a better scoring roommate, that may improve your chances — if the roommate has good credit to offset yours. Alternatively, you could sublet from a better scoring roommate whose name is on the lease.
- Look at the market. With a high vacancy, landlords may be more flexible. If your score is low, you may have the most options in areas of town where there's high vacancy.
- Are you a former homeowner? Many landlords view low scores from former homeowners more generously than low scores held by non-homeowners. If you could get and pay a mortgage, they reason, you can pull it together to rent, even if you're in recovery mode.
- Go to a little guy. In some larger buildings or neighborhoods, an anonymous management company makes decisions about who can and cannot rent and doesn't have much flexibility about what scores count as permissible and not. But sometimes if you approach an independent or small-company landlord — one who manages, maintains and rents out the property himself or herself — you can get a face-to-face chat about why your scores are bad, and the landlord will factor character into the lease decision in addition to your numbers.
Jane Hodges is the author of Rent vs. Own: A Real Estate Reality Check for Navigating Booms, Busts, and Bad Advice.