Your credit can determine a lot in your life, from the interest rate on your mortgage, to whether you can get a cellphone contract. But can poor credit (or no credit) really cost you a new apartment?
Property owners can and do check potential tenants’ credit.
“In a nutshell, it is to make sure that an applicant has shown previous financial responsibility, which is usually a good indicator that they would make a reliable tenant,” says Niccole Schreck, senior brand manager of Rent.com.
Yet what exactly they’re looking for and whether your credit will harm your chances of being approved depends on the situation. We asked a couple experts from the rental industry to share their insights.
How important is my credit?
Your credit is not the only factor considered, or even the most important one, says Bart Sturzl, president elect of the National Association of Rental Property Managers and owner/broker at Bella Real Estate in Austin, Texas.
At his company, which provides property management services (including tenant screening) for individual residential property owners, “credit is not the number-one important thing we look at.”
Previous rental references and income lie above credit on the importance scale.
“If they don’t make the necessary income, we don’t even start the process of running their credit,” Sturzl says.
Your criminal record also plays a role in a landlord’s decision.
Are landlords looking at my credit score, or my credit report?
The answer will vary, but his company, Sturzl says, first takes a peak at your credit sore.
“We look at the FICO score,” he says. “And our company is looking for 600 or better.”
Texas state law (and the law in many other states) requires property management companies to put their criteria (including credit criteria) in writing, hence the need for a clear-cut limit. Have a score above the limit? Assuming you meet the other written criteria, you’re in.
Fall below that limit? It doesn’t mean automatic denial, but it does mean a deeper dive into your credit report.
“If you’re above 600, I’m not looking further,” Sturzl says. “If you’re below 600, I’m going to start digging.”
During that deep dive, the reason for your low score may make a big difference.
“Sometimes people have low credit scores, not because of defaults or collections, but because they have too many inquiries,” Sturzl says. “If their score is low, but we find that there are no defaults or collections, they could be OK.”
Other property management companies, meanwhile, may comb every, single credit report off the bat, Sturzl says. And, according to Schreck, some may look not only at defaults and collections, but at your payment history.
“Landlords are also looking at credit card activity to see if potential tenants are meeting the monthly minimum payments on or before the due dates, which can be an indicator of a potential tenant’s cash flow,” she says.
And then there are landlords who may not check your credit at all. Thousands of owners don’t use brokers and own just a single rental property or rent rooms in their own abodes. They might simply use online background checks or even just their gut (as these types of landlords aren’t bound by Fair Housing laws).
“A lot of these do-it-yourselfers meet the applicants, and if they like them, they rent to them, and if they don’t, they don’t,” Sturzl says.
Which debts look particularly bad?
Assuming your potential landlord takes that deeper dive into your credit reports, delinquencies, collection accounts and repossessions will be alarming, no surprise there.
“Anything that shows that the rental applicant has not been able to meet their required payments is a major red flag,” Schreck says.
Collection accounts from past rentals (coupled with bounced checks and late pays in your rental references) may also be grounds for automatic denial, Strurzl says.
Harsh? Perhaps, but property owners can take only so much of a risk.
“A lot of people will pay their rent before they pay anything else. They have to have a place to live, and we understand that,” Sturzl says. “But if we see there are items you’ve defaulted on, it throws up a red flag that maybe you don’t make enough money, and here you are trying to rent this property. You’re in default, and you can’t meet your obligations currently.”
Some property owners may even be sticklers for particular types of debt. Sturzl recalls a story told to him by an industry colleague: A real estate agent had expressed surprise that a client had been turned down for “just medical debt.” The property manager responded that the owner was a doctor who saw unpaid medical bills as very troubling.
“You just don’t know who you’re dealing with on the other end,” Sturzl says. “Most property managers manage for other owners. I have 186 owners. That’s 186 different personalities that are willing to take different amounts of risk. ”
Is no credit as bad as bad credit?
Certain groups (migrant workers, the elderly and the young) are more likely to have no credit history.
With no credit history, it’s impossible to pull a credit score. But that doesn’t necessarily mean denial. Instead, the property management company may make a decision based on other factors, such as your rental history and income.
“No credit does not mean bad credit,” Sturzl says. “Just because someone doesn’t have credit doesn’t mean they’re not credit worthy.”
If I have bad credit, can I find a place to live?
Property owners have other risk-management tools at their disposal, in addition to outright denial. For example, a riskier renter might have to pay a higher deposit.
“If someone comes in with a score in the 500s, and we look into it and it’s not because of rental collections or anything like that, we’re going to recommend to our owner that they approve with a double deposit,” Sturzl says.
Despite that recommendation, it’s still up to the property owners, Sturzl says. A property that’s been vacant for months may increase the owner’s appetite for risk. Another owner might decide the risk isn’t worth it, even with a larger deposit. Property management companies have standards of their own, too, and your application might not even get seen by the property owner if your credit is bad enough, Sturzl notes.
I know my credit is bad. Should I be upfront about it?
Yes, say both Schreck and Sturzl.
Tenants have the right to ask for rental criteria before applying. Some companies put their criteria online and require applicants to initial the criteria as they fill out the application. So read carefully, because finding that your credit score falls short gives you a head start.
“A lot of times, people will say up front, ‘I have poor credit, but I’m willing to pay extra in deposit,'” Sturzl says. “They’ll offer it immediately, and that goes a long way.”
In addition, include a letter with your application or schedule a meeting with a potential landlord to explain the circumstances behind your bad credit and why you’d still make a good tenant, Schreck recommends.
“At the end of the day, a credit check is just a series of numbers,” she says. “But when a rental applicant takes ownership and responsibility for what may surface during a check, that demonstrates character and financial maturity.”