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If you’re looking to rent your next apartment it is important to consider the impacts renting can have on your credit. Landlords often check prospective renters’ credit to see if they are likely to be responsible tenants who pay rent. But do apartment credit checks hurt your credit score? That all depends; this article will cover how apartment credit checks can impact your score, what landlords look for in your credit, and how you can improve your score.
Key Points:
- Credit checks help landlords see if you are a reliable tenant with a history of on-time payments.
- If a landlord performs a hard credit check, you may notice a temporary drop in your credit score.
- Landlords will ask your permission before performing a hard credit inquiry. Be sure to understand what type of credit inquiry they will be making hard versus soft
What Happens When Landlords Check Your Credit
Most landlords will check your credit as a part of the application process to understand whether you are a risky or not so risky candidate to collect rent from. The credit check might be hard or soft. These checks are interpreted by the credit bureaus, so it is important to understand what a credit bureau is. It's possible that a credit check for an apartment can hurt your credit score.
Not only will landlords look at the score as a number, this credit report may include other details about the individual such as your payment history, debts across all loans, any public record like a bankruptcy, among other things. This helps the landlord assess the risk of the candidate renter.
Hard Inquiries vs. Soft Inquiries
- Hard credit inquiries:
Hard credit inquiries do impact your credit score and your score may drop a few points following a hard inquiry; further, hard inquiries stay on your credit report for up to two years but they typically only impact your score for about a year. Examples of when to expect hard inquiries include Mortgage applications, credit card applications, loan applications - Soft credit inquiries:
Soft credit inquiries do not affect your credit score. This type of credit pull typically takes place as a part of a background check and is not associated with a particular application for credit. Examples of when you may expect a soft inquiry include checking your own credit score, background checks for employment, pre-qualified credit card offers.
Landlords might do a hard inquiry or a soft inquiry. You will likely be asked to sign off on your rental application, and you will be able to see or ask what kind of credit inquiry is going to be performed.
What Landlords Look For
When landlords perform a credit check, they can see information such as your credit score, credit inquiries and history, payment history, debts, and any public records such as a bankruptcy.
Landlords may be less likely to rent to people who have attributes like a low credit score, high levels of debts, late payments history, or even accounts in collection. These are all signs that the lessee may be risky and therefore possibly harder to collect from.
Renting with Poor Credit
Renting with a good credit score is easier, but you can still rent an apartment if you have a lower credit score. There are some actions you can take if you have a poor credit score to rent an apartment:
- Use references: If you know people who are willing to write a reference letter on your behalf attesting to your reliability it can only help your situation
- Emphasize your high income: If you earn a lot of money, and more than enough to pay the rent, try explaining this to you potential landlord
- Show bank statements with solid savings: Even if you have a low credit score you still may have sufficient savings which you can tap to pay a lease
- Agree to pay a higher security deposit: Mitigate risk for the landlord, putting more money upfront will reduce your risk profile
What Impacts Your Credit Score
Your FICO credit score is calculated using five weighted categories: To acquire a good FICO credit score, look at the following, the percentages listed represent the weight that FICO gives to each of those factors.
- Payment history (35%): whether you’ve been making payments on time.
- Debt (30%): the total amount of money you owe across all your accounts.
- Credit age (15%): how long you have had your credit accounts open.
- New credit applications (10%): how many times you have applied for new credit recently.
- Loans or “credit mix” (10%): how many loans of different types you have.
As you consider the steps you can take to build good credit, remember the weight of each. As you can see, the most important thing you can do to work towards an excellent credit score is to pay your bills on time. Next, pay attention to what you owe. Avoid carrying a balance of more than 30% of your credit limit. So, if you have a credit limit of $10,000, keep your balance under $3,000.
Understanding Your Credit Score
Credit scores range from 300 to 852, which is the standard in the financial services industry. However, it is essential to understand that not all credit scores are the same. Each of the three main credit bureaus has a slightly different take on credit score ranges.For example, the FICO score range is as follows.
- Poor = <580
- Fair = 580 - 669
- Good = 670 - 739
- Very Good = 740 - 799
- Exception = 800+
Improving Your Credit Score
Whether starting from no credit history, or building up your credit score from its current amount these tips can be implemented by anyone with access to credit and benefit your score in the long run.
- Employ good credit habits by paying your bills on time and using no more than 30% of available credit.
- Get a credit-builder loan, which will allow you to build your score and save up money at the same time.
- Ask a friend or a family member to add you as an authorized user on their credit card. This way you can begin building credit indirectly.
- Limit new credit applications to an absolute minimum. Whether hard or soft credit checks are being performed, you should limit how much credit you’re seeking at one time
- Do not close old credit accounts, even if you no longer use them. Age of your credit is a key factor in your score, with more time being better.
- Regularly review your credit report for errors or fraud. If there are any errors or suspected frauds, work with the credit bureaus to clear up any mistakes.
- Diversify your credit mix with different types of credit like a credit card, a line of credit, and a car loan.
How Renting Can Help Your Credit Score
A hard credit inquiry with a rental application can temporarily lower your credit score, but you can use on-time rent payments to help your credit score. You can also use services to report your rent payments to the major credit bureaus. Here are a list of a few services which may be of interest.
Final Word
Whether an apartment credit check will impact your credit score depends on the type of credit check being performed. Being aware of what lenders look for, how to check your score ahead of time, and providing documentation are all things renters can do prior to starting the application process. Maintaining a good credit score is difficult and takes time, but in the long run can help people secure shelter, vehicles, or even business loans.
