Updated September 15, 2020
You may be ready for a new place to live, but there could be one thing holding you back—your credit score. A credit score for renting is a crucial part of your rental application, but if the number isn’t high enough, it could cause issues in the rental process. But just because you have a low credit score doesn’t mean you can never rent a house or apartment. Here’s everything you need to know about credit scores for renting. This guide to renting and credit scores has everything you need to know to help get your credit back on track and get into a great rental.
A solid credit score plays a significant role in getting you into your dream apartment. A bad credit score, on the other hand, can limit your options and prove to be an obstacle in your search for a new home. Credit history shows apartment managers that you are a trustworthy applicant who will make payments on time.
Credit scores are calculations based on an individual’s credit spending history. Score results range from 300-850, and an individual is considered more fiscally trustworthy the higher the number.
Your credit history, report, and score provide insight into your reliability and your experience in managing your money. Data available through a credit check includes the history of on-time bill payments, balances on credit cards or loans, foreclosures, repossessions, and more. Apartments look at credit scores to determine that you are financially responsible and can be trusted with the responsibility of paying rent each month.
Individuals cannot build credit with cash or a debit card. The idea of credit is that an organization has extended credit with an agreement for the individual to repay within a certain timeframe. As the individual repays credit consistently, such as by paying a credit card bill or monthly loan payments, their credit score improves, and the amount of credit that banks or credit card companies are willing to extend to them increases.
Depending on the price range of the apartment, managers typically like to see a credit score of at least 620-675 to feel comfortable renting to you with no additional stipulations. According to a study conducted by the Federal Reserve Bank of New York regarding average credit scores throughout the US, Colorado’s average is 689. Ideally, you want your credit score in the mid-600s or better, but of course, anything higher than that is always preferred.
If your credit score is just below that range, there are sometimes other ways for management companies to mitigate their risks and still rent to you. If you apply with a credit score of 580, the rental agency might just ask you to pay more money upfront in the form of a larger deposit. Applicants with bad credit scores or no credit are often better off applying with a cosigner: someone with a healthy credit score who will legally assume the financial responsibility of renting the apartment. Of course, always check with the agency or landlord you want to rent from to see if they can work with you or if they absolutely require a higher credit score.
Many apartment management companies list a minimum credit requirement on their website, while others choose not to disclose that information. You will need to check with management on individual requirements for both the principal applicant and any co-signers.
Property managers aren’t looking for perfect credit history, but there are a few red flags that consistently get applicants turned away, such as credit cards being charged-off or car repossession. Minor mistakes, like late payments on an account that’s gone stagnant, matter less. Other factors that impact the outcome of your application include your income level and the history of any evictions or criminal convictions.
Renting with bad credit depends mostly on why your credit is low. If your credit is low because of things like unpaid medical bills, late student loan payments, or being jobless due to injury, an apartment manager isn’t going to weigh your low credit score as heavily. They’re mostly concerned about signs of chronic financial mismanagement. Even with poor credit, you still have a chance of being approved by getting a co-signer, advancing rental payments, or making a larger security deposit.
If your credit score is low, you may be asked or required to boost your application by:
Extremely low credit scores, such as those in the low 500s or lower, carry a higher risk of being denied. Speaking to the apartment complex concerning your credit history could help, but that is not guaranteed.
If you have no credit at all, you’re likely going to need to find a friend or family member who is willing to act as a co-signer. Responsible apartment management companies will not feel comfortable entering into a leasing agreement with someone who does not have a financial history. After making enough payments on time, your landlord might be willing to remove your co-signer from the lease. Of course, this again is not guaranteed.
When you are looking for rental opportunities in Northern Colorado, you may find that Fort Collins property management companies and landlords care about your credit score. Why should they care—and why, as a potential renter, should you?
Property managers care about your credit because it is an indication of your financial dependability. If you have a good credit score, chances are you will pay your rent on time. Conversely, a low credit score may mean either that you are inexperienced and have little to no credit history or that you have used credit poorly and may default on your rental agreement.
You can find your credit score by running a hard credit inquiry or a soft credit inquiry.
A hard credit inquiry occurs when a creditor looks at your credit. This type of inquiry lowers your credit score for the next 6 months. It has a small impact on your credit report for 12 months and will age off your report after 24 months. You should avoid making multiple hard inquiries within a short time span.
There are 3 major credit bureaus that run hard inquiries: Equifax, Experian, and TransUnion. It is wise to check your credit annually to be aware of your financial standing, but avoid checking it within six months of making a major purchase.
Additionally, you can check your credit score by running a soft credit inquiry. Unlike a hard inquiry, you can run a soft inquiry as often as you want without it impacting your credit score. Banks often provide your credit score, or you can run a soft inquiry for free at Credit Karma.
There are many factors that impact how renting will affect your credit score. Here are a few:
The key to building credit is to obtain a line of credit and use it responsibly. You can do this through auto loans, credit cards, secured credit cards, a credit-builder loan, a secured loan, and more.
In short, your credit score is an indication of your financial dependability. Your property manager may use it as a way to assess whether or not you would be a responsible renter, and it is a valuable tool to help you reach your goals.
Wondering how you can improve your credit score for renting? Here are five ways to make it happen.
Before you can go about improving your credit score, it helps to know what it is. Each of the three main credit reporting agencies allow you to request a free credit report each year without a penalty. Too many requests can lower your credit score, so do it sparingly. Carefully check your credit report for any errors. If you notice something is wrong or outdated, you can dispute it with the credit reporting agency or your lender. Reviewing your credit report and ensuring the information is accurate is one of the easiest and fastest ways to improve your credit.
A number of factors impact your credit score, but the biggest one is your ability to pay your bills on time, including your credit cards and loans, as well as rent, utilities, and cell phone. Landlords want to see that you are reliable with your payments, which is shown through regularly paying down bills on time. If needed, set a reminder to make your payments each month or set up autopay so that the money automatically comes out of your account. Late payments bring about fees from the lenders and also can seriously hurt your credit score.
The general rule is that the more debt you have, the lower your credit score, especially if you aren’t working towards paying off the debt. Start by paying down credit cards that are maxed out and then work your way through the larger loans. Even small payments can make a difference, especially when they show the credit reporting agencies that you are making continual and constant progress to paying off your debt.
Avoid paying off debt that has been “charged off” or sent to a collection agency, because payments can actually reactivate the loan and lower your credit score.
Some people are tempted to close credit cards they aren’t using, but doing so can actually hurt your credit by lowering your credit utilization ratio, which is calculated by totaling your average balance and dividing it by your credit limit across all cards. Credit reporting companies want to see a variety of credit sources, even if that means cards you aren’t using. The only exception to this rule is if the unused credit card comes with an annual fee. But for cards without an annual fee, even if you don’t use them and they don’t carry a balance, it can help your credit to keep them open.
Having a variety of forms of credit can improve your credit score. Your credit mix includes any car loans, student loans, or credit cards and accounts for 10{ec1d25302c0c3e829886c092caa623e779a888dbf9e1057900a08c9ab9a85bb1} of your credit score. You shouldn’t simply sign up for new credit cards as a way to improve your credit score because that plan will backfire, but you can add another element to your credit mix if you do it responsibly. Another option is to become an authorized user on someone else’s account as long as they use their credit responsibly.
These five ways to improve your credit score can put you on a path to renting an apartment in Northern Colorado or elsewhere. Your credit score is a crucial part of your rental application, and working to improve it can lead to serious benefits. Raising your credit score doesn’t happen overnight, but with consistent effort and responsible payments, you can improve your credit score for renting and get one step closer to a great apartment.
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