What do Landlords Look for on Your Credit Check?
There's no question that your credit history affects whether or not you'll be approved to rent a property.
But did you know that according to TransUnion SmartMove it's the #1 factor? Renter payment problems are landlords' top concern, and 90% say they always run credit checks.
Considering that the cost of the average eviction is $3,500, you can understand why property managers do as much careful financial vetting as possible before approving a new tenant.
That means even if your credit score is decent, the information on your credit report can sabotage your chances of renting not just the place of your dreams — but any place at all.
Landlords will take a deep dive into your credit history to seek out red flags, so here are the top 6 things they're looking for that may work against you.
Prior evictions: Evictions are tough and expensive to all involved, and like you, landlords want to be sure they are taking precautions against this unfortunate situation. If your eviction was ancient history it will likely have less impact than one that happened more recently.
Major financial problems: This includes things like bankruptcy, especially if it's pending and not ancient history/discharged, having accounts in collection, and charge-offs, which happen when a creditor decides a debt is unlikely to be collected. To a landlord, these red flags say that you're a risky tenant who may not pay according to the lease terms.
Payment history: Not only is this the top contributing factor to your credit score (35%), but it's also a logical place for landlords to focus on when perusing your credit report to see your behavior over time. They look for consistent, on-time payments for several accounts and may also consider how long the accounts have been open. (The longer, the better because it shows reliability and stability.)
Credit utilization: Another important factor in your credit score (30%) is credit utilization, this applies mainly to revolving accounts, like credit cards, where you have a credit limit and have to pay at least a small portion of what you owe each month. High credit utilization, which measures your available credit vs. used credit, is a warning signal because it shows potential landlords that you may already owe more than you can afford to pay back. And if you're already in over your head, adding a new monthly rent payment is risky.
Debt load: The ratio between debt you carry vs. how much income you earn is your debt load, and like credit utilization, it is a good way for landlords to tell if monthly rent payments would put a strain on your wallet. As a rule of thumb, landlords don't want to see more than 50% of your gross income going to bills and rent.
Rental history data: Since this is directly related to what the landlord is assessing, any rental history data is helpful — from past addresses you've lived at (so those property managers can be contacted) to actual rent payments.
Want to get your rental application approved? Take these steps.
Don't panic if you have negatives on your credit report, as there are several steps you can take to prove you'd be a great tenant.
1. Don't be blindsided; check your credit report:
You are entitled to an annual free credit report from each of the top three credit bureaus, and the perfect time to check it is when you are about to rent a new place. It's important that you check all three reports from the top agencies (Equifax, Experian and TransUnion), because their information may vary, and landlords can use just one or all of the bureaus' reports to assess your creditworthiness.
2. Correct errors on your credit report:
Mistakes happen — and often times they aren't even your fault! According to a survey by LendU based on publicly available data from the Consumer Financial Protection Bureau (CFPB), 74% of people who filed complaints said their issue was about inaccurate information recorded on their credit reports. Thanks to the Fair Credit Reporting Act, you have the legal right to fight mistakes on your credit report. If you're in the process of disputing an inaccuracy, you can let the landlord know what's going on.
3. Get a letter from your current employer confirming your salary and your character.
Be proactive and ask your employer to provide documentation, in writing, about your earnings. While she or he is at it, a strong reference that confirms you are a hardworking, responsible person will reinforce your application. (This is also a great strategy to try if this is your first apartment, or if you have thin or no credit history for other reasons.)
4. Line up a co-signer:
If you have thin or no credit, are in the process of finding a new job, or otherwise can't easily prove your income, the odds are against you that you'll be approved to rent an apartment without a cosigner. Be prepared by already having a cosigner on board so that person can vouch for you. Just keep in mind — they'll be on the hook to pay your rent if you can't.
5. Ask if there are other ways you can be approved as a tenant:
It is possible that a larger down payment of three or more months' rent up front can help seal the deal for you. Or, you might ask for a month-to-month agreement so there's less risk for the landlord and for you. Either is worth asking about, especially if you feel confident that your new rent payment will not be an issue for you.
6. Once you are successfully renting, improve your credit and overall financial life:
Getting your rent payments reported to all three credit bureaus is a smart way to build your credit score and also ensure that future landlords see your positive track record as a tenant. In some cases, you may even be able to report up to two years of prior rent payments, which is a great way to show a new landlord that you're a responsible tenant.
If you use RentTrack, you're not only assured that your responsible payments are reported, but you'll also see your credit score with a breakdown of all the factors affecting it. You can also sign up for instant Credit Protection alerts, so in the event any negative information is unfairly reported, you can take immediate steps to protect your credit.
Once you know what landlords are looking for on your credit report, you're one step closer to finding a new place to live. Proactively addressing those financial trouble spots might just might be the fuel you need to arrive at your desired destination: a new apartment.