Can You Get Apartment for Rent With Bad Credit?
As a potential renter, your main concern is the cost of rent and whether it fits into your current financial situation. However, adequate income may not be the only factor that determines whether you're a good candidate for a particular rental.
Getting approved for a rental is not as straightforward as getting approved for a mortgage. Mortgages have a set of basic guidelines that potential borrowers must meet to receive financing, regardless of the lender. Rental approval, on the other hand, is at the discretion of the landlord or rental company.
If rentals are in high demand in a particular area or building, the requirements could be more strict. If a landlord is looking to fill a rental quickly, the requirements might be more relaxed.
It's important to identify any stumbling blocks in your financial picture that could prevent you from getting the rental you want.
How Does Credit Affect Your Apartment Rentals?
Landlords are seeking the full picture of the type of tenant you will be which usually requires collecting different pieces of information such as the following:
- Proof of Income: Do you have stable employment and income that can easily cover the cost of rent?
- Background Check: Do you have prior or pending criminal charges that could put the landlord or other tenants at risk?
- References: What type of tenant have you been in the past?
Aside from these things, another important qualification factor for a large number of landlords and rental companies is adequate credit health.
According to a 2014 study by TransUnion, 43% of landlords perform a credit check to weed out rental candidates. Of that group, 48% say credit was a determining factor in approving or denying a rental applicant.
So what exactly are landlords on the hunt for when they check your credit?
Here are a few areas they could be paying attention to:
Debt
Income is only one piece of the cash flow puzzle. If you have a large amount of debt, that represents a large monthly financial obligation that could hinder your ability to pay rent in full and on time.
Payment History
Speaking of on-time payments, your credit report will show how you’ve fared in the past when it comes to paying creditors each month. While a few late payments might not hinder your chances too much, a consistent pattern of late payments could.
Bankruptcies, Foreclosures, and Other Delinquencies
Major financial hiccups like bankruptcy, foreclosure, eviction, or repossession can be seen as a huge red flag to landlords looking for stable, dependable tenants.
While a good explanation can lessen the negative impact, these could lead to a denial on the spot.
Credit Score
A TransUnion survey found that four out of five landlords agreed with the statement, “I don’t pay much attention to the credit report I just look at the credit score.” The good news is, many landlords are looking for a credit score range, not a concrete score.
All About Credit Scores
If you aren’t familiar with what your credit score is or what’s on your credit report, the rental process can seem like a shot in the dark.
By familiarizing yourself with credit basics now, you’ll have a better idea of your prospects and what should be fixed before filling out an application.
While there are several different types of credit scoring systems, the model used by more than 90% of U.S. lenders is FICO. The exact calculation of credit scores is complicated, but we know scores are comprised of five different factors. Each factor bears a different weight in determining the total score.
FICO Credit Score Factors and Their Percentages
| FICO credit score factors | Percentage weight on credit score: | What it means: |
|---|---|---|
| Payment history | 35% | Your track record when it comes to making (at least) the minimum payment by the due date. |
| Amounts owed | 30% | How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits. |
| Length of credit history | 15% | The average age of your active credit lines. Longer histories tend to show responsibility with credit. |
| Credit mix | 10% | The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.) |
| New credit | 10% | The new lines of credit that you've requested. New credit applications tend to hurt you score temporarily. Learn more about FICO credit score |
So what’s considered “good” and “bad” when it comes to credit scores? Here are the ranges so you can determine how your score might make you look to a potential landlord.
Credit Score Ranges and Quality
| Credit Score Ranges | Credit Quality | Effect on Ability to Obtain Loans |
|---|---|---|
| 300-580 | Very Bad | Extremely difficult to obtain traditional loans and line of credit. Advised to use secured credit cards and loans to help rebuild credit. |
| 580-669 | Bad | May be able to qualify for some loans and lines of credit, but the interest rates are likely to be high. |
| 670-739 | Average/Fair | Eligible for many traditional loans, but the interest rates and terms may not be the best. |
| 740-799 | Good | Valuable benefits come in the form of loans and lines of credit with comprehensive perks and low interest rates. |
| 800-850 | Excellent | Qualify easily for most loans and lines of credit with low interest rates and favorable terms. |
How to Improve Credit Quickly
If you’ve obtained your credit score and report and think it might present a challenge in getting a nice apartment, there are ways to make improvements now -- before getting denied.
Pinpoint and dispute errors
First things first: Make sure the negative information listed on your report is actually accurate.
If it’s not, begin by making a dispute with each of the three credit reporting agencies (Equifax, Experian, and TransUnion), or with the original creditor. They may be able to contact the credit reporting agencies on your behalf.
Pay down debt
Maybe your credit utilization is particularly high after paying for a major car repair or other unexpected expense. Pay down your revolving credit accounts as soon as possible -- even if it means making a payment more than once a month.
Ask for higher credit limits
If you already have trouble paying your balances each month, this probably isn’t the best choice. But if you already manage your revolving credit responsibly, this can provide an extra boost to your score.
Negotiate with your creditors
Were you a responsible credit user until life circumstances made it a challenge to be? Try talking to your creditors and see if they can work with you to remove late payments, establish a payment plan, or mark paid debt as “paid as agreed.”
Pay your bills on time, every time
Late payments begin to fall off your credit report as you continue to pay on time, every month. It might not lead to a quick credit score jump, but the more time you place between now and your last late payment, the better you will look.
Don’t close old accounts or open new accounts
Closing old accounts can lower your amount of available credit and therefore raise your credit utilization. It can also potentially lower your average credit history length. Opening new accounts can also lower your average credit history length and increase your chances of being seen as a credit risk. Again, this won’t necessarily raise your score, but it will prevent it from taking a deeper dive.
Conclusion
Just like not being able to meet income requirements or having a rocky rental history, bad credit can certainly have an impact on your ability to be approved for a nice apartment.
If the reason for your bad credit can be explained -- which might be the case for medical debt, for instance -- you may be able to get around it. But it never hurts to work to remedy the situation now.
Order your report from each credit reporting agency and making a plan to correct mistakes, pay down debt, and use credit responsibly from this point forward. (You are entitled to one free credit report every year from each of the three agencies and can request them at AnnualCreditReport.com.)
