Whether you’re moving across the country or across town, looking for a new apartment can feel overwhelming. There are so many factors to consider, such as location, square footage, amenities, and even your credit score. When it comes to renting an apartment, your credit score plays a key role in determining your eligibility.
Property management companies, along with individual landlords, often perform credit checks to assess the risk level of a potential tenant. They see your credit score as an indicator of financial responsibility and your ability to meet monthly rent payments consistently.
A high credit score can send a positive message, showing you are likely to be a reliable tenant. However, a low credit score may do the opposite.
Why does credit score matter for renting an apartment?
Credit score, a three-digit number that comes from your credit history, serves as a measure of your creditworthiness to potential lenders, including landlords.
A good credit score can make you appear less risky, as it can reflect a history of properly managed finances and on-time rent payments. Landlords may hesitate to rent to individuals with poor credit scores, since they may see the score as a risk.
Understanding your credit score's significance in the rental market can make your apartment-hunting process much smoother. Once you know your credit score, you can know where to look for apartments and how to start improving your credit.
How are credit scores calculated?
Credit scores, like the FICO score, range from 300 to 850, with higher scores indicating less credit risk. The major credit bureaus — Experian, Equifax, and TransUnion — calculate credit scores based on the information in your credit reports. Each agency might have slightly different information about your credit history and scoring models, which can cause variations in your score across bureaus.
Here's a simplified breakdown of what goes into your credit score:
- Payment history (35%): This includes the record of your on-time and late payments. Timely payments can help increase your score, while late payments can negatively affect it.
- Credit utilization (30%): This is the ratio of your outstanding balances to your available credit limits. Lower utilization rates are generally better for your credit score.
- Length of credit history (15%): This considers the age of your oldest account, the average age of all your accounts, and the age of specific account types.
- Credit mix (10%): This is the diversity of your credit accounts, including credit cards, student loans, auto loans, and mortgages.
- New credit (10%): This includes the number of hard inquiries or new credit accounts recently opened.
What does your credit report say about you?
Your credit report provides a comprehensive picture of your credit history. It contains personal information, credit accounts, public records, and inquiries. Lenders, including management companies and landlords, use these reports as a financial background check to get a general sense of your financial behavior and reliability.
As stated above, payment history plays a crucial part in your credit report. A consistent record of on-time payments can show that you are a responsible borrower, while late payments may raise red flags for potential landlords.
Another factor that could affect renting is hard inquiries, which occur when a lender checks your credit for approval. Too many hard inquiries can negatively impact your credit score. Landlords might view several recent inquiries as a sign of financial instability.
Maintaining a healthy credit report isn’t necessary for navigating the rental market, but it can help open up your options.
Why do landlords look at credit reports?
Credit checks are an integral part of the tenant screening process for landlords and real estate professionals. A credit check offers a snapshot of a potential tenant's financial behavior, painting a picture of their ability to make on-time rental payments.
Landlords seek assurance that their rental property will generate a steady income, and credit checks can help them feel confident in a tenant's financial responsibility.
However, a lower or poor credit score can impact a rental application negatively. Such a score could suggest a history of missed payments or financial instability, potentially making you a higher-risk tenant. This could result in landlords requiring a larger deposit or even declining the application.
It's important to remember, though, that a poor credit score is not an automatic disqualifier. There are many other factors that landlords consider when deciding whether or not to rent to a tenant.
What role does rental history play?
Your rental history is arguably the most key factor involved in the rental application process. It includes information from previous landlords about your track record of paying rent and following lease terms. Landlords typically look for tenants who have been reliable to other landlords in the past.
Positive feedback from previous landlords can significantly boost your rental application. This feedback can include punctual rental payments, respecting property rules, maintaining the rental property in good condition, and more.
A history of consistent, on-time rent payments, in particular, can offer reassurance to prospective landlords. It shows that you're likely to fulfill your financial obligations, and may even outweigh the risks of having a lower credit score.
Can a cosigner or guarantor help renters with bad credit?
If your credit score is less than stellar, having a cosigner or guarantor can boost your application. A family member or signer can act as a guarantor, which basically means they promise to cover the rent if you fail to do so. In the eyes of property management, a cosigner serves as a safety net, reducing the financial risk associated with renting to someone with bad credit.
However, not just anyone can be a cosigner. The person typically needs a good credit score and enough income to cover your rent if needed. Also, the cosigner takes on a considerable risk — if you miss rent payments, it becomes their responsibility to pay, and their credit score can also be affected.
What are other factors that landlords consider?
While credit scores and rental history are important, landlords also consider other aspects of your financial situation.
Proof of income, for instance, is a common requirement. Landlords need to know you have a steady income that can comfortably cover your rent. You can provide proof of income by giving your landlord copies of your pay stubs or bank statements from the past few months. A general rule is that your monthly income should be at least three times the monthly rent.
Some landlords might also require a larger security deposit up front, particularly if your credit score is low. This deposit acts as a buffer for landlords, providing them with a level of security against potential missed payments or property damage.
How can credit scores be improved?
Maintaining a good credit score is a fundamental aspect of financial health, and it plays a significant role in the apartment-hunting process. Keeping a low credit utilization, making on-time payments, and avoiding red flags such as evictions or defaults, can all help you improve your credit score.
A good credit score can open the door to better rental opportunities, lower security deposits, and a smoother application process. Using a credit card like Vital Card, responsibly can also help you achieve a higher credit score.
Vital Card encourages responsible sharing and spending. By keeping your credit utilization low and making timely payments, you can support your credit health and score.
The bottom line
Understanding minimum credit score requirements, gauging your creditworthiness, and being aware of the average credit score in the rental market can help you navigate the rental market and find a rental property that works for you.
It's important to note that your credit score is just one factor landlords consider. Showing proof of steady income, having a positive rental history, and possibly having a cosigner can all contribute to a successful rental application.
So, even if you have a lower credit score, don't be discouraged. There are many steps you can take to improve your credit score and strengthen your rental application. If you’re looking for a new credit card, consider signing up for the Vital Card waitlist.
Credit Score FAQs | Experian
Can My Credit Score Affect Renting? | Experian
What Are the Different Credit Score Ranges? | Experian
What Is a Credit Utilization Rate? | Experian
How Much of My Income Should Go Toward Rent? | Experian
Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.