Want that great apartment? Improve your credit score
By Allie Johnson
August 21, 2014
Whether you rent a house from the lady down the street or live in a swanky high rise, renting is tied to your credit in many ways.
The effect is circular: Your credit can affect your ability to rent a place, and your track record as a renter can have a major impact on your credit report and score, which in turn can affect your ability to rent in the future.
So, it's important to learn the ins and outs of renting and credit. Here are five things you should know:
1. Some landlords require a minimum credit score. That's right: The wrong three digits could prevent you getting your dream apartment application approved. Minimum required scores by landlords can vary, but using the FICO score, the one most lenders track, minimum scores can range from 600 for a basic apartment that rents for $500 a month to 700 or higher for a place that rents for $1,500 a month, says Jeffrey Taylor, a landlord and founder of MrLandord.com, a site that provides resources for landlords. The FICO score ranges from 300-850. Taylor says he does not require a minimum score, but looks at an applicant's overall rental history, credit report and employment. “Most smart landlords know people can be excellent residents and not have a good credit score,” he says.
Tip for renters: If your credit score is shaky, be upfront with the landlord, Taylor says. Whether your score is poor because you were laid off a few years ago or you were hit with huge medical bills, be honest, he recommends. “I'm much more likely to rent to residents if they're straightforward in the beginning,” he says.
2. Your credit could get dinged by a deadbeat roommate. “Having a roommate has great benefits, but also great risks,” says Rod Griffin, director of public education for credit bureau Experian. Most landlords require all adult renters to sign the lease, which typically states that each roommate is responsible for payment of the full rent amount, Taylor says. So, if your roommate loses her job, blows his rent money at the casino or simply moves out, you're on the hook, experts say. For example, say you rent a $3,000-a-month apartment with two roommates, and one of them can't come up with his share of the rent, so you only pay $2,000, says Susan Bryant, vice president of marketing for Apartments.com. “All three of you could face eviction, regardless of the fact that two of you did pay,” she says. If the landlord takes you to court to get an eviction judgment, it can show up on your credit report as a public record, Griffin says.
Tip for renters: Before you agree to share the financial responsibility with a roommate, ask to see a copy of his or her credit report, Griffin says. Then, ask your landlord if she'd be willing to create a separate leasing agreement for each tenant so you're not responsible for your roommate's rent, Bryant says. And always talk to your landlord at the first sign of roommate trouble, Taylor says. A property owner or manager who gets forewarned about problems will be more likely to work with the roommate who's trying to be responsible, Taylor says.
3. Paying rent late might not hurt your credit. If you're only a few days late with a rent payment, your credit likely will remain unscathed. However, if you're so delinquent on rent that your landlord takes action to collect, that's another story, Taylor says. A landlord usually will send a “pay or quit” notice, giving a tenant a certain number of days to settle up or move out, Taylor says. If the tenant doesn't pay in that time, the landlord might file an eviction case and get a court date, he says. After the tenant moves out, the landlord might tally up the bill, including past due rent and charges for any damage to the apartment, and send it to a collection agency, he says. That could show up on your credit report as a collection, Griffin says.
Tip for renters: If you get a notice from your landlord giving you a certain number of days to pay your rent or move out, do your best to come up with the money during that time, Taylor says. “Borrow from a friend or relative or see if your employer has an emergency fund,” he says. “When the landlord files for a court date, it becomes a public record.” When Taylor checks out a prospective tenant, he sometimes finds three or four eviction cases filed against them by their current landlord, then dropped when they paid, he says: “They're thinking they're all good because they paid, and they don't realize they've done damage to themselves through public records.”
4. You might be able to build credit by paying rent on time. Consumers who are trying to beef up their credit files might be able to get their rent payments to count toward their credit history, Griffin says. Some landlords use Experian RentBureau, in which tenants make rent payments through a payment service, which reports the payments to the bureau, Griffin says. TransUnion offers ResidentCredit, which lets property managers report positive rental payment history. Getting rent payment history reported can help people establishing credit for the first time, such as young adults or immigrants, and also can help people rebuilding their credit, Griffin says.
Tip for renters: Ask your landlord to report your on-time rent payments to Experian RentBureau, Griffin says. There is a fee, but some landlords add it to the rent, he says. Or, managers of larger properties can use TransUnion's ResidentCredit, which does not charge a fee and will share information with the other bureaus at the landlord's request, according to TransUnion. More and more companies — credit bureaus and companies that will report to the bureaus — are now offering rental property owners the ability to report residents' rent payments, says Taylor. Some companies also offer a similar service directly to consumers. For example, Rental Kharma, for a one-time fee of $45, will contact a landlord to verify on-time payments and report them to TransUnion.
5. Breaking a lease can damage your credit. You might need to break your lease because you landed a job in another city — or maybe your apartment is noisy, unsafe or infested with bugs. Even if you have a good reason, breaking a lease can hurt your credit, Bryant says: “When it comes to breaking a lease, the stakes are high.”
Tip for renters: Before you sign a lease, ask if your landlord will include an early termination fee agreement, which will allow you to pay a fee to get out of the lease early, Taylor recommends. Otherwise, in some circumstances, federal or state law might let you to break a lease without owing any more rent. For example, if you are entering active duty military, federal law allows you to break your lease. And Nolo.com has a list of state laws on breaking leases. For example, in Alabama, you can break a lease if your landlord repeatedly harasses you. It's smart to do your homework before you tell your landlord you want to move before your lease is up, Bryant says: “Be honest, review the lease and know your rights.”