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Real estate is a risk versus reward business. Landlords assess the risk when renting to people and determine if the reward will pay off. One way they do this is by running credit checks.
Credit checks give landlords insight into people’s financial dealings. This allows them to determine if someone is likely to pay his or her bills on time and be a responsible tenant.
It’s important for tenants to understand what is involved in the credit check process. They need to know what landlords are looking for and how to increase their odds of getting approved. It’s also important to understand what tenants can do if they are denied.
What Are Landlords Looking For?
Landlords look at several factors when analyzing credit reports. First, they look at consistency and stability.
They see if the tenant has a history of paying his or her bills on time. On time payments from month to month and year to year indicate the tenant is consistent and financially stable.
That means people who have a history of late payments, charge-offs, or judgments are less likely to be approved.
Landlords also look at a person’s rental history. A credit check provides important information about the prospective tenant’s past rentals.
Many landlords report tenant rental history to credit bureaus so other landlords can see if they owe money to previous landlords. Those who owe money aren’t likely to get approved for a new rental.
The prospective tenant’s debt load is also revealing, which is why landlords also analyze it when looking at credit reports. Landlords look at the renter’s financial obligations to determine if the person can pay for the rental.
If someone has excessive debt, he or she is less likely to make rent payments on time. However, if the person doesn’t carry much debt when compared to income, then he or she is likely to make payments comfortably. That reduces the landlord’s risk.
While all landlords are different, most don’t want a tenant’s debt load to exceed 50 percent of his or her gross income. Landlords who have properties in high-cost areas might be more flexible with this. They understand people often have to spend more of their gross income on rent and bills.
Landlords also want to know the tenant’s bankruptcy status. Bankruptcies stay on reports for as long as a decade and can impede a person’s ability to get approved for a rental property.
People who have a discharged bankruptcy are more likely to get approved than people with a pending bankruptcy. Because of that, those who have discharged bankruptcies shouldn’t stop trying to find a place to rent.
Increasing the Chances of Getting Approved
Those who have poor credit might be concerned about getting approved. While it is more difficult to find a rental property with bad credit, it is still possible. There are things tenants can do to increase their chances of getting approved.
First, tenants should be upfront about their issues. Those who have past collection or rental issues are more likely to be approved if they explain the situation to the landlord. It’s never a good idea to let the landlord find out via the credit report. After all, credit reports don’t tell stories, they just tell facts. People can explain why they ran into problems. Maybe they were laid off from their jobs or got ill and fell behind due to medical bills. Explaining the reason behind the issue can make the difference between getting denied and approved.
Going with a smaller company also makes it easier to get approved. Individuals and small companies are often more likely to overlook past transgressions.
Tenants can also take some time to repair their credit before applying for a rental property. This might be time-consuming, but it’s a good and simple way to make their credit scores go up.
Denied? Do This
People can be denied for a multitude of reasons, but they often fall into one of two categories. People either have bad credit, or thin or no credit.
All hope isn’t lost when a tenant gets denied due to the credit check. There are some things people can do to end up inside of the property anyway.
Putting more money down is one option. Landlords will often rent to people who have bad credit if they pay the first several months of rent in advance. The more months the tenant can pay in advance, the more likely he or she can end up inside of the property.
Some people even pay the full amount of the lease in advance. This allows the landlord to mitigate all of the risk that comes with bad or no credit. If the landlord already has the money then it doesn’t matter how bad the person’s credit is.
Getting a cosigner is another option. This is a good choice for people with poor or no credit. The cosigner assumes responsibility for the loan if the person fails to pay. This helps to put the landlord’s mind at ease.
Choosing the right cosigner is very important. Good credit is only one thing people should look for when selecting a cosigner. He or she also needs to live near the rental property. Many landlords only accept cosigners who live in the same jurisdiction. This makes it easier for them to sue the cosigner if necessary. It’s worth noting that some landlords do accept cosigners that live across the country. It’s up to the landlord, so tenants should speak with their landlord prior to choosing a cosigner.
Building up the credit profile is another option. This is slower than the other choices out there, but it has the biggest benefit in the long run. How people do this depends on their credit situation.
Those who have bad credit must take the time to get their credit profiles in order. That means making on time payments and paying down debt. They might still have bad credit at the end of a year, but they will show the landlord they’ve made strides in the right direction. That could often be enough to get approved as a renter.
Those who have thin or no credit need to start building credit. They can start small with a secured credit card and then continue from there. Their scores will begin going up as they demonstrate the ability to make on time payments.
If these tips do not work, tenants have one more option. They should look for another rental. Some landlords are more flexible than others when it comes to renting to people with poor or thin credit.
Tenants can look for cheaper options out there. They can also find a landlord who does not run a credit check. It might take some time to find such a landlord, but they exist.
The rental credit check can be stressful, but prospective tenants can get through it. Even those who are denied still have options. Use these tips as a guide to get approved, regardless of your credit situation. From bad credit to no credit, most people can find a way to get approved for a rental property somehow.