Housing is a basic human need, but there are many roadblocks in our society that get in the way of having a place to call home. One such roadblock for many is a credit score.
When you apply to rent an apartment, a house, a condo, or any other form of shelter, the landlord will do their due diligence to control the property. This process includes several aspects of a background check to minimize the chances of renting to someone who cannot pay, has a history of property destruction, or is an otherwise high risk to the property itself.
One small part of this due diligence is a credit check and credit report analysis. Landlords are (one of several) entities that routinely pull credit reports to analyze their potential renters for suitability.
If you're having trouble applying for an apartment or renting a house, read on.
Your credit score is a semi-objective measurement of your financial presence and history. A long and successful history of making payments on time, utilizing credit appropriately, and maintaining diverse assets will help build a credit score. Conversely, a short credit history, a credit history fraught with late payments, or a credit report with adverse events like bankruptcy can drop a credit score.
Credit scores are always a three-digit number ranging from 300 to 850. You can raise this score in various ways, some faster than others.
While there is no objective number that landlords look for, specific credit ranges have certain associations.
A generally-accepted scale typically looks like this:
The question is, what is the minimum necessary to rent an apartment? Can you rent an apartment with a poor score, a fair score, or a good score?
650 falls into the higher end of Fair and is relatively easy to achieve. However, it's not a hard-and-fast rule. Landlords look at more than just the credit score number. Additionally, the competition in the housing market can raise or lower the score necessary to rent in any given area.
Typically, rural areas, areas with lower general income levels, lower property values, and less competitive markets will have an even lower credit score requirement. Some landlords in these areas may not even check credit scores, though this is typically rare.
Conversely, higher value, upscale, and highly competitive markets will have higher credit score requirements. For example, many landlords in New York City – a highly competitive and expensive environment – will look for 680 or 700 as a minimum.
"According to a 2017 survey report from RentCafe, the average credit score of approved applicants was 650, while the average credit score of rejected applicants was 538. The numbers are a little higher for high-end buildings: 683 for accepted applicants and 553 for rejected applicants. The location has an even bigger impact on the average credit score needed for approval. The cities with the highest credit scores were Boston (737), San Francisco (724), Seattle (711), Minneapolis (711), Oakland (707), Philadelphia (702), and Los Angeles (691)." - Bungalow.
Again, this all varies from landlord to landlord and depends on the property's location. Individual landlords may be more flexible than property management companies, as well.
While the credit score is a simple, bite-sized way to analyze an individual's level of financial solvency, it's not the whole story. This shortcoming is why landlords and property managers will typically pull a full credit report rather than rely solely on your credit score.
The full credit report will offer more detail than a credit score alone and can show a landlord more helpful information - this allows them to make a better judgment of their rental candidates.
What might a landlord look for in a credit report? Like the score level required to rent, this can vary from landlord to landlord. In general, they may look for:
A landlord's #1 concern with their tenants is consistency in rental payments. If the landlord isn't getting paid, they're losing money on the maintenance, upkeep, property taxes, and other expenses of keeping up on a property.
Be aware, however, that late payments are not guaranteed to affect your credit score or even show up on your credit history. Typically, an overdue payment will only show up on your credit report if it has been more than 30 days since the due date of the payment.
If you're living paycheck to paycheck and are late on a payment by 1-2 days, or even by a week, the late payment is still unlikely to show up on your credit report.
In some cases, you may have even more leeway. Some banks, lenders, and financial agencies will not report a late payment until it has reached 60 days unpaid.
The idea is not to punish people who forget a bill or whose mail gets lost, or who lose a job and are temporarily out of income. Minor mistakes should not, and are not, held against you in that way.
This example is also why it can be a good idea to pursue something like an economic hardship deferment or another kind of deferment or payment plan on a past-due loan; because you undertake such a deferment or payment plan with the permission of the financial institution, they generally will not report it as an adverse event on your credit report.
When a debt is past due for long enough, a financial institution no longer wants to pursue collecting the money. Some may forgive the debt, but many sell the debt to a collections agency. The collections agency pays the institution typically pennies on the dollar and then attempts to collect the total amount (or a lesser amount) from you.
This transfer of debt to a collections agency is typically reported on a credit report. A landlord looking up your credit report when you try to rent an apartment will see any accounts in collections, likely along with what collection agency is pursuing it, the value of the debt, and other details.
Debt collectors have an extensive list of laws and regulations governing their behavior. Regardless of your feelings on the ethics of debt collection, the fact remains that collection agencies exist and will be visible on a credit report.
When you or another entity requests your credit information, the request can be classified as a "hard inquiry" or a "soft inquiry." A soft inquiry is not reported on the credit report and is not factored into your credit score - a hard inquiry is.
Hard inquiries typically include credit card companies and lenders pulling your complete credit report. Soft inquiries include checking your report using your legally-mandated free annual report, when a lender pre-qualifies you for a loan offer, and many other credit pulls.
When a landlord checks your credit report, their check may be classified as a hard inquiry or a soft inquiry, depending on the method they use to pull the information.
Why would a landlord check if you have other hard inquiries? It gives them an indication of whether you've been applying for other lines of credit, other apartments, or other loans that could affect your ability to pay rent. This factor can be significant if you have many hard inquiries and no new open lines of credit; this indicates you may have been repeatedly denied. The landlord might look for more information as to why this has happened.
There are provisions here.
"According to FICO, its scoring model allows for "rate-shopping" for consumers applying for a loan or, in this case, apartment-hunting for people seeking a place to live. FICO ignores inquiries made within 30 days of your apartment application. So, as long as your apartment hunt doesn't drag on for too long, your score won't be hurt by multiple credit inquiries." - Bankrate.
Essentially, multiple hard inquiries of the same type will be lumped together. If you apply to multiple landlords or mortgage lenders to find the best terms, you may have numerous hard inquiries, but they will only count as one event for your report and score calculation.
Declaring bankruptcy is a complex process with many factors. Bankruptcy can wipe out debts you cannot pay, though some debts cannot be removed through the bankruptcy process. However, it can be devastating to your credit report. It is, essentially, a huge sign that says you were unable to meet your debt obligations.
Of course, there are many reasons why your debt burden could rise up above and beyond your means, including a sudden loss of a job, medical issues, and related strains. Context can be necessary, and while bankruptcy can be devastating, it may not necessarily be a deal-breaker for all landlords.
Another potential red flag for landlords is a high debt-to-income ratio.
Even if you can sustain your debt payments with your income and lifestyle, a high debt-to-income ratio puts you at greater risk of financial disaster if you lose a job or another tragedy occurs.
However, it all comes down to an individual landlord's judgment as to what is an essential factor in their consideration.
Even if you have a poor credit score, you still need somewhere to live. Typically, you have options. While some landlords will deny you the ability to rent from them, others may be more forgiving.
Another option you could consider is apartments that offer no credit checks. These are fine as a last resort, but you risk worse terms and a worse living situation. Be cautious when pursuing this option if you have any viable alternatives.
While landlords generally tend to look for at least 650 in the credit score of their tenant applicants, the score alone does not tell the whole story. If you have a lower score, you may still be able to argue your case and prove your financial solvency. Good luck!
Is your credit score affecting your opportunity to apply for an apartment or purchase a house? Which credit score factors caused you to be denied by your application? Do you have any questions for me? Please share with us in the comments below, and I'll get back to you with an answer!