How to pass a rental credit check

When you find a rental that fits your budget and requirements, you want to make sure your application floats to the top of the pile. Landlords and property management services want someone who will pay rent on time, won’t cause trouble, and will keep the place in good condition.

A credit check is one of the tools landlords use to screen rental applicants. A 2014 study conducted by credit bureau TransUnion, found that 43 percent of landlords surveyed use credit checks as part of their leasing process. In other words, bad credit might keep you from the place of your dreams, and good credit can help you stand out.

Here’s an overview of why your credit matters and what landlords might look for when reviewing your application.

Your credit history can matter as much as your credit score

Landlords sometimes separate applicants by their credit scores, but your credit report can be even more important. Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage,” manages rentals in Albuquerque, New Mexico and looks for, “the story the report tells.”

“If there’s a pattern of weak credit over a long period of time… then even if they’ve brought their credit score back up I won’t rent to them,” said Fleming.

On the other hand, Fleming isn’t bothered if a single life event, such as a divorce or illness, led to derogatory marks if the applicant has an otherwise good record.

Landlords like Fleming want to know the details contained within one of your credit reports, not just the resulting score.

Your credit reports keep a record of late payments, foreclosures, evictions, bankruptcies, and other derogatory marks from the last 7 to 10 years. Your report also has positive information, such as on-time payments, and identifying information, such as your Social Security number and date of birth.

Mindy Jensen, community manager for the real estate investing social network and information site Bigger Pockets, also emphasizes the importance of your report.

“A past eviction is the kiss of death to most landlords,” said Jensen.

However, “some [landlords] will take into consideration the timing of that past eviction.” If the eviction happened years ago and you have a valid reason, you could still be a strong candidate.

Be upfront about past mistakes

Check your credit reports for negative marks before sending off a rental application. You can order a free credit report from each national consumer credit reporting company (Equifax, TransUnion, and Experian) once every 12 months at AnnualCreditReport.com. Several companies also give you free access to your credit report throughout the year.

Review your credit reports for potential red flags and write down explanations that can help ease a landlord’s worries. You might want to offer explanations with your application rather than waiting for the landlord to ask. For example, you could have a maxed out credit card because you consolidated credit card debts onto a balance-transfer credit card with a zero percent interest rate offer. That could show financial prowess rather than an aptitude for overspending.

Holly Porter Johnson and her husband Greg, owners of the ClubThrifty personal finance blog and rental properties in central Indiana, take these explanations to heart when considering applicants.

“We do run a credit check,” said Johnson, “but are generally accepting of past mistakes if renters are forthcoming from the start.”

The Johnsons also place a lot of value in a strong reference from a previous landlord.

Start working on your credit ASAP

In addition to preparing explanations of negative marks, you can start taking steps to improve your credit. Not only can a higher credit score help make the rental process easier, it may save you lots of money if you decide to buy a home later and need to take out a mortgage.

There are five major factors that influence your credit score. The two most important are your payment history and the amounts you owe.(Source) Make a habit of always paying bills on time, even when you can only afford the minimum payment. Also, try to only use a small portion of the credit that’s available to you. For example, if you have a credit card with a $5,000 limit, try to keep the balance below $1,500. (Source)

What else do landlords want to see?

Property managers and landlords can order screening reports to compare applicants. The report often contains your credit history, a criminal background check, an eviction report, and other background information. You might also be asked to submit a bank statement, pay stub, and previous landlords’ contact information with your application. (Source)

How can you improve your chances if you have poor credit?

A clean criminal background check, job stability, a high income compared to the rent, large savings, and positive references from previous landlords are all important. If you have all of that and a low, or no, credit score, you could still be a great rental applicant. You can also pre-empt objections by including letters of recommendation from previous landlords or employers in your application.

If you’re struggling because of your credit, a roommate who has good credit could ease a landlord’s worries. Asking a friend or relative to co-sign the lease is another option. However, be cautious about who you ask. If you’re unable to make a payment, the co-signer will be responsible for the debt.

There may be financial fixes to your credit problems as well. For example, putting up a larger security deposit, paying several months’ rent in advance, or paying the landlord with automatic bank transfers. Or, if you really want the apartment, agree to pay slightly more in rent.

Bottom line – your credit matters

Your credit report or score could make or break your application. Be prepared to offer explanations for negative marks on your credit report and start taking steps to improve your credit score.  Also, remember that your credit is only one factor that landlords consider. A strong co-signer, letters of recommendation, and demonstrating a willingness and capability to make rental payments on time can be just as important.

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If your credit score is poor – generally below 600, you’ll have trouble obtaining almost any type of credit. You’ll likely find it difficult to rent an apartment; bad credit can even disqualify you for many jobs. Fortunately, time is on your side. Derogatory items fade in importance as they fade further into the past. However, you must also be proactive in replacing negative items with positive ones. Following these 10 tips will help you raise your credit score to 700 – and beyond.

1. Maintain On-Time Payments

Maintaining a pattern of current, consistent pattern of payments on your bills is by far the most important single aspect of establishing and maintaining good credit. In fact, payment history counts for a whopping 35 percent of your total FICO score. Nothing can raise – or lower – a FICO score more than the way you pay your bills.

2. Correct Errors on Your Credit Report

If you haven’t developed the habit of checking your credit report regularly, it’s time to start. The odds are high that there is at least one error on your credit report. Even apparently small errors like a misspelled name can result in your shaky credit being comingled with someone else’s even worse credit. Each consumer is entitled to one free credit report annually from each of the three major credit bureaus: TransUnion, Equifax and Experian. Obtain your credit reports at the annualcreditreport.com website.

3. Pay Off or Settle Outstanding Bills

It’s true that if you wait long enough, many creditors will give up trying to collect what you owe. But the derogatory mark on your credit report will remain for up to seven years. If possible, contact your creditors to pay off or settle outstanding bills. If the bills have been referred to a collection agency, ask for the necessary contact information. Once you’ve paid off the bills in arrears, make sure your credit report reflects that fact.

Personal Loans for Poor and Fair Credit

Lending PartnerMinimum FICO ScoreAPR Range 
No Min36% - 299%*Apply
No minimum36% - 199%*Apply
60015.49% - 34.99%*Apply
6005.99% - 35.89%*Apply
No Min35% - 155%*Apply
5809.95% - 35.99%*Apply

4. Increase Monthly Credit Card Payments

If you’re only making minimum payments on your credit card bills, you may have current status, but you’re not doing yourself any favors. Ideally, you should pay off balances in full every month. But if that’s not possible, try to generate extra income or savings elsewhere so that you can start boosting your monthly payments. After a few months, you’ll begin to see a real difference in your balances – and your FICO score.

5. Maintain Low Debt-to-Available Credit Ratios

The aspect of your FICO score with the second-highest impact is your debt load, which counts for 30 percent of your FICO score. Carrying a high debt-to-available credit ratio can sink your credit. By resisting the urge to max out your credit cards, you’ll reduce your stress levels, and raise your credit scores.

6. Diversify Your Credit Accounts

Having different types of credit can boost your FICO score. If you have credit card debt, try to obtain an installment loan. If you can’t qualify for an unsecured loan, ask for a loan secured by a bank account or certificate of deposit. If you’re a member of a credit union, you may have better luck than applying at a bank.

7. Get a Secured Credit Card

You may have given up on credit altogether as a means of avoiding future financial difficulty. While that’s admirable, it’s no way to build good credit. Instead, scout out secured credit cards from reputable credit card companies. Secured credit cards are indistinguishable from regular credit cards, and responsible use will boost your credit score. One caveat – most prepaid credit cards DO NOT report to any credit reporting agencies, which means that they’re of no use in helping you boost your FICO score.

8. Piggyback Your Way to Good Credit

If you have family members with good credit, perhaps you can become an authorized user on one or more of their credit cards. Your credit will get an immediate boost but you won’t be responsible for any of their debts. Be careful with this tactic – if you slack off on paying your bills, you could trash your family member’s credit, not to mention your relationship. Likewise, if their credit takes a hit, yours will too.

9. Consolidate Your Bills

Consolidating your credit card bills into a single monthly payment accomplishes two purposes: eliminating high-interest credit card debt (and likely obtaining a lower total monthly payment) and giving you one place to pay and a single due date. But don’t make the mistake of running up new debts to replace the debts you wiped out. You should also avoid payday loans at all costs. If you cannot qualify for any other type of loan, you’re better off continuing to pay down your credit card debt.

10. Establish a Bank Line of Credit

If you’re a good, long-standing customer, you may be able to obtain a line of credit from your bank even if your credit is marginal. Having an available line of credit can boost your credit to debt ratio, which improves your FICO score. And unlike a loan, a line of credit usually does not generate payments due until you actually use it.

No Magic Wand

Barring the correction of multiple, serious errors on your credit report, it’s unlikely that you’ll be able to raise your FICO score from 550 to 700 instantly. It took time to sink your credit; you’ll need to exercise a bit of patience, along with your credit repair strategies, to yield results. However, following one or several of the strategies listed above WILL improve your credit report and raise your FICO score.