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I remember the day I signed the lease on my first apartment like it was yesterday. I was eager to receive my set of keys and move in, but there was one thing I was not prepared for.
I had no idea that my landlords would want to check my credit. I wasn’t even totally sure what my credit score meant or if I even had one. I wish I would have been better financially prepared for the accommodations I had to make in order to score my first place.
We were denied our first apartment when the landlord checked our credit. After pleading with them to make an exception, they reluctantly agreed if we could meet their conditions. We had to shell out extra cash in the form of a larger security deposit to give them the peace of mind they needed to feel comfortable renting to us.
Understanding your credit score is important if you are thinking about making a move. If you’re like me, you might even wonder why your score matters so much to your prospective landlord.
This key piece of information can determine whether you have a place to live and how much you have to pay before you can sign on the dotted line. Unfortunately, I found this out the hard way.
However, luckily for you, this means that you don't have to!
Get ready to learn all you need to know about your credit score and why it may matter to your future landlord..
What is a Credit Score?
A credit score is a number that represents how likely you are to repay the money that you borrow from lenders. In financial jargon, this is known as your creditworthiness.
Your score will be a three-digit number that ranges from 300 to 850 with the higher numbers representing a better score.
As your credit score increases, you become more likely to qualify for certain types of loans and better terms. Your credit score can also impact your ability to rent a home or an apartment. Your landlord may very well take important cues from your credit score.
After all, if you struggle to pay your credit card bills, how will you manage to pay your rent?
Most people are familiar with the FICO credit score, created by the Fair Isaac Corporation. This is the standard measurement that most lenders use to determine whether they can allow you to borrow money.
Most lenders use a system of ranges to determine what types of loans you will qualify for. Each lender may set their own ranges, but the most commonly accepted ones are:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
I like to keep tabs on my credit score so that I know exactly what lenders (and landlords) see when they look at my profile. Many credit card companies will give you access to your FICO credit score as a complimentary service. Be sure to look at previous statements to see if this important information is listed anywhere.
I recently found out that my credit card company started offering this on my statements, so it is easier than ever for me to make sure my financial health is in good shape. If your bank or credit card company does not offer your score, you can still gain access to it.
You can sign up for an account at myFICO.com for a small fee to see what lenders see when they look at you. It might be a small price to pay to have a better idea of where you stand before looking for a new rental.
How Does Your Credit Score Affect Your Rental?
Your credit score can impact every area of your life including where you live. While most people recognize that your score matters when shopping for a mortgage, many people don’t think about how it affects your ability to rent.
A landlord or an apartment company will often pull your credit before they decide to accept you as a tenant.
My husband and I just signed a lease for an apartment while we are waiting for the construction on our house to finish. We are intimately familiar with our credit score as we walk through the process of obtaining a mortgage.
However, we were a little surprised to see that our leasing office requested our credit score too.
Fortunately, we had good credit and weren’t in for any surprises as a result. If your credit is bad or you don’t have credit at all, this may not be your experience. When we got our first apartment, we had to offer up a lot of funds in order to secure our place.
Why should your credit score matter when renting an apartment? Your credit score is impacted by five main categories:
- Payment history
- Total amount owed
- Length of credit history
- Types of credit
- New credit
Your payment history makes up the bulk of your credit score, accounting for 35 percent of the final number. Landlords want to see that you have a good history of making on-time payments to others before they take a risk on you as a tenant.
Your credit utilization, or the total amount that you owe, is almost as significant as your payment history.
This number makes up 30 percent of your credit score. In this category, financial experts are looking at how much credit you currently have compared to how much you are using.
If you have a credit card with a limit of $1,000 but only have a $500 balance, then you have a 50 percent credit utilization rate. A higher credit utilization rate can mean a lower score. Higher rates here can start to make lenders and landlords nervous that you do not have enough money to cover the cost of your bills.
In addition, your debt to income ratio may be too high, which means that your bills take up a larger portion of your finances than your monthly income does.
A future landlord may see this is a problem because you don’t have a lot of wiggle room when it comes to financial emergencies. Because your finances are so fragile, you might be denied a request for the apartment you love, all because you use too much of your available credit.
The length of your credit history is equally important to landlords. It comprises 15 percent of your total credit score. Landlords like to see tenants who have a long credit history because it gives them a fuller picture of your financial health. A credit history that spans several years is ideal to get the best terms on a new rental.
The type of credit you have and your new credit lines also play a role in your overall credit score. Each category accounts for 10 percent of your score. While these two groups do matter to your overall credit score, they are not as important to landlords as the first three.
How to Rent with a Low Credit Score
Are you starting to sweat it because your credit score may not be good enough to qualify for a new rental? Rest assured that there are ways around this.
When I got my first apartment, I had no credit score at all. The apartment complex I lived in checked when I filled out my initial application.
While it wasn’t the ideal situation, we were able to come up with a few compromises so that we both got what we wanted: they got security that I would pay my bills and I got to live in their complex.
The best thing you can do is to be upfront with a potential landlord if you suspect that they may be planning to pull your credit. If there are extenuating circumstances that led to your poor credit, they may be understanding.
For example, perhaps you had medical bills that set you back and forced you to turn to your credit cards to make ends meet. Many people are understanding in these types of situations and will give you an opportunity to prove yourself.
Keep in mind that you will still have to come to some sort of agreement with your landlord. In many cases, they will want a larger security deposit in addition to rent for your first and last months. Sometimes, they will even ask for your second month’s rent upfront. By offering up more money, they have some assurance that you can indeed afford this apartment.
Paying more money was how we were able to score our first apartment. We had to pay both first and last month’s rent as well as a security deposit equal to one month’s rent.
While it set us back a bit in our savings account, it was the only option we really had to obtain a rental until we were able to improve our credit score.
Another option would be to co-sign your lease with someone who has a great credit score. This really only works if you are confident that you can pay off your monthly rent. Otherwise, it can lead to sticky situations where your friend or family member is on the hook for your rent. If they don’t pay it, their own credit score may suffer.
Some landlords may let your poor credit slide, but they may request references.
A reference letter from someone who has rented to you in the past and can speak well of you can go a long way toward assuaging their fears. Unfortunately, this was not an option for us because we had never rented from anyone else before.
We were stuck with paying more money for our first apartment. However, we always make sure to leave off on a good note with our landlords so that we can use them as future references if the need ever arises.
So, in short, if you’re getting ready to rent with bad credit, prepare yourself by:
- Saving 2-3 months of rent payment ahead of time
- Working on a special deal with the landlord
- Obtaining referral letters
Most landlords will be willing to work with you if you give them a reason to. Prepare yourself ahead of time to show them that you’re serious and willing to do what it takes to get the apartment that you want.
How to Improve Your Credit Score
While it is possible to rent with a low credit score, you should always be making strides to improve it. A better credit score can help you to rent an apartment with less money upfront and can even qualify you to purchase a home in the future.
Improving your credit score can be easy, but it takes time and a great deal of discipline.
Open Up a Credit Card
Right after I learned that I had no credit, I decided to get serious about building it up for the future. I went to my local bank and opened up a small credit card with a $500 limit.
I used it to buy small things that I knew I could afford like groceries and gas for my car. At the end of every month, I made sure to pay it off. This demonstrated that I had a good payment history and gave me a small start to my credit.
Opening up a credit card that you can afford to pay for is one way to build up your credit score. Just make sure that you are not maxing out your cards with no intention to pay for them when the monthly bill comes.
Some people treat credit cards like free money, and I know I used to think the same thing. Your payment history does matter so be sure to stay on top of it.
Lower Your Credit Utilization
Another way to boost your credit score is to lower your credit utilization. For those who already have a credit card or two, this might be fairly simple. First, make sure that you are in good standing with your financial institution. This means that you have been paying your bills in a timely manner with a proven track record.
Next, all you have to do is call customer service and see if they will give you a credit limit increase. They will do a soft credit pull that does not damage your credit score and determine if they can reasonably loan you more money.
I found that my credit card company increases my credit limit every so often. My limit started at $500 but has been increased to $5,000 over the years. Yours may do the same, but it never hurts to ask the question first.
How does this increase your credit score? Take a look at the numbers. Let’s say that you still have a credit card with a $1,000 limit and you currently have a $500 balance.
This gives you a credit utilization rate of 50 percent because you are using half of your available credit. If that limit increases to $2,000 and your balance remains the same, then you have a credit utilization rate of just 25 percent. The trick here is to increase your limit without increasing your spending.
Pay Your Bills on Time
The biggest thing you can do to improve your overall credit score is to pay your bills on time.
Remember that payment history makes up a whopping 35 percent of your overall credit score. All you have to do to capitalize on this boost to your credit score is remember to pay your bills on time.
I like to set all of my bills on autopay. Without this handy function, I often forget which bills are due on which day. With everything automated, I never have to worry about missing a payment again.
For bills that do not offer me the ability to pay automatically, I set a recurring alarm on my phone to jog my memory.
Renting and Your Credit Score
The good news is that you can definitely rent a home or apartment with a low credit score, but you might have to make some adjustments.
Coming up with a large deposit might mean postponing your move for a few months until you can save up. It might even mean having a difficult conversation with a friend or family member about co-signing for you until you can increase your credit score on your own.
Weigh the pros and cons before you start to move and make sure you give yourself adequate time to work something out with a landlord. Having bad or no credit may delay your life plans for now, but not forever.
Knowing how to navigate renting before you decide to jump into it will save you a ton of headaches down the road, and trust me, I know from experience.
Fortunately, improving your credit score doesn’t have to be difficult. With a few financially savvy moves like being responsible with the credit you have and always making sure to pay your bills one time, you can improve your financial health. Consider what you need to do to make sure payments are made on time.
Talk with your local bank about opening up a small credit card or increase the limits on your existing cards. An improved credit score takes time, but you can start today!