Your credit score and history are a direct reflection of your purchasing power. Lenders, potential employers, and even landlords use this information to gauge your worthiness as a candidate. Unfortunately, not everyone is blessed with stellar credit, but everyone does need a place to call home.
Key Takeaways:
- Understanding Credit Reports: Obtain and review your credit reports from all three bureaus for inaccuracies and dispute any errors found.
- Improving Credit Scores: Work on paying off debts, keeping credit utilization below 30%, and avoiding new hard inquiries to improve your credit score.
- Negotiating with Landlords: Offer a larger security deposit, find a co-signer, provide landlord reference letters, and show proof of stable income to increase your chances of renting with bad credit.
- Alternative Renting Strategies: Look for flexible landlords or property management companies, consider prepaid rent, and explore lease-to-own options.
- Using Credit-Boosting Tools: Sign up for services like Experian Boost to potentially increase your credit score by including timely utility and rent payments in your credit history.
- Seeking No Credit Check Apartments: Search for apartments that do not require credit checks, often found in privately owned or managed properties.
- Financial Responsibility: Demonstrate financial responsibility by offering to pay rent upfront and showing a commitment to maintaining a good payment history.
- Credit Counseling: Consider getting help from credit counseling services to manage debt and improve financial literacy.
So, renting an apartment with bad credit can be challenging but not impossible. We will teach you how to address your credit issues, offer creative solutions to landlords, and demonstrate your reliability to increase your chances of securing an apartment with less-than-desirable credit.
Assessing Your Credit Report
Understanding your credit scores and report will be the first step in this process. You cannot do this until you pull a copy of your credit report and familiarize yourself with its contents and how it affects your scores.
Get a Copy of Your Credit Report
You have the right to know the contents of your credit file, get your scores, and obtain a copy of your free credit report through AnnualCreditReport.com. Request all three credit bureau options: Equifax, Transunion, and Experian.
The report will tell you your revolving balances with each creditor and how much credit is being utilized. It will also tell you the monthly payments, the age of the account, the types of loans you have, such as credit cards, mortgage, auto, and student loans, as well as any past inquiries into your accounts and any late payments.
Review the Credit Report for Inaccuracies
Review each of these tri-merge reports from all bureaus meticulously and dispute any and all errors. If you have any late payments on your report, you can call the creditor and briefly explain the circumstances that caused the error, what you did to correct it, and that it won’t happen again. You can also ask for a goodwill adjustment via a letter, especially if the late payment is accurate. Explain that there were unexpected changes in your life, such as a divorce, job loss, etc., and it is hindering your ability to get housing, etc.
Late payments typically drop off after seven years, so if you see this on your credit report, you can file a dispute with the company to correct it if it is still on your report after seven years.
Failing to correct errors on your credit is a direct violation of the Fair Credit Reporting Act (FCRA), and the credit card reporting agencies must amend any incorrect late payment errors.
Understanding Your Credit Score and Its Impact
Your credit score is made up of numbers from 300 to 850. These are known as FICO scores and will be reflected in your report. It is essential to check your credit scores regularly to avoid fraudulent activity, understand where and what dinged your credit, and where you can improve. Every point, especially if you are on the cusp of the next tier, can save or cost you thousands.
| Rating | Score | Percentage of Americans |
|---|---|---|
| Exceptional | 800 – 850 | 21% |
| Very Good | 740 – 799 | 25% |
| Good | 670 – 739 | 21% |
| Fair | 580 – 669 | 18% |
| Poor | 300 – 579 | 15% |
Your credit score has a significant impact on your quality of life. It affects your borrowing power, interest rates, employment, insurance premiums, utilities, landlord approval, and many other aspects of your life.
Ways to Improve Your Credit Score
One obvious tactic is paying off any outstanding debt and avoiding late payments. The next major item is to reduce credit card balances and keep your credit utilization ratio to less than 30%. Payment history makes up 35% of your credit score, and credit utilization is another 30%. These two main categories are the bulk of your credit scores.
Don’t open new credit accounts while trying to improve your scores since this will bring your scores down from lender hard inquiries. A hard credit inquiry can lower your score by as much as 10 points, but for most people, it takes five points from their FICO score.
Look into Credit Counseling Services. Credit counseling companies are non-profit government agencies that help individuals manage their debt, teach financial literacy, and help you develop a manageable payment plan that gets you on your way to financial stability. Credit counseling companies are not to be confused with debt settlement companies.
Strategies to Use on Your Prospective Landlord
Here are a few strategies to bolster your case with your prospective landlord, bringing you closer to tenant approval.
- Offer a larger security deposit: Offering a higher security deposit offsets any perceived risks for landlords and is a common practice. If you have no credit or poor credit, it is not uncommon for landlords to ask for up to 6 months of security, especially in expensive real estate marketplaces.
- Find a co-signor or guarantor: You will want to find a co-signor with excellent credit that meets the landlord’s rental income requirements. For instance, landlords require 80 to 100x the yearly rental amount in expensive marketplaces such as Manhattan for an acceptable guarantor.
Provide past landlord reference letters
These can be obtained from your past management company and typically include basic information such as name, property address, date, length of tenancy, monthly rental payment, content describing the tenant, and management contact information. Adding letters of recommendation from employers and colleagues may also help plead your case.
Provide proof Of income
You can get a letter of employment from your current employer stating tenure, position, and annual salary. Presenting pay stubs, W-2s, tax returns, bank letters, brokerage, or investment accounts are also great ways to increase the chances of landlord approval.
Offer prepaid rent. Prepaying rent can also ease landlord concerns about bad credit. The added benefit to you is that it not only alleviates the possibility of late payments but gives you a cushion of not thinking about rent for the months that have been paid ahead.
Write a letter of explanation
Sometimes, extenuating circumstances lead to bad credit, such as a divorce, job loss, or medical expenses. Be honest and transparent in your reasoning, highlight what you are doing to improve the situation, and show your commitment to being a responsible tenant.
Look for landlords or small property management companies that are flexible with tenants with bad credit.
Smaller or mom-and-pop landlords tend to be more flexible with tenants with lousy credit than large corporate management companies. They are also more inclined to discuss your problematic situation. Increase your chances by contacting the mom-and-pops with small rental properties of 1-4 units and do the day-to-day management themselves.
Bonus Tip 💡: If you gain approval with this type of landlord, they don’t typically increase rent as aggressively as larger landlords.
Sign Up for Experian Boost
Experian Boost lets you include household monthly bills you pay on time to be tied to your credit history credit and build your scores. Eligible accounts for Experian Boost include phone bills, gas, water, electric, trash, internet, streaming accounts, and rent. Because they are not considered debt, they can still be reliable indicators of fiscal responsibility and creditworthiness and are not traditionally reported to the three credit bureaus. But Experian allows them to contribute to your FICO scores.
Apply for a no-credit check apartment
No credit check apartments are typically privately owned and managed. Private landlords have more flexibility when selecting tenants, and you can discuss your unique situation directly with the property owner and devise a compromise.
Sometimes, obtaining a month-to-month lease allows the landlord to skip the credit check since it is considered a short-term lease. One caveat is that these leases are more expensive than a typical 12-month lease.
With these types of direct leasing, having a flexible move-in date can also be beneficial. Most landlords don’t want their properties sitting vacant. And they will be more willing to take a tenant who will start paying rent immediately.
Other Creative Solutions to Ease Your Burden
These solutions will only work with small mom-and-pop landlords, not large management companies.
Negotiate rent increases and lease terms
Once you feel the landlord is receptive to your tenancy, you can broach the length of tenancy and rent increases. Typically, leases are 12 months long. But landlords prefer long-term, good-paying, non-disruptive tenants. You can negotiate these terms in light that you see your financial and credit situation improve within the next year or so.
For instance, you filed for bankruptcy due to a divorce. The bankruptcy will stay on your credit report for seven years, making jumping from one place to another challenging. You have the means to pay the rent on time, so go ahead and ask the landlord not to do any rental increases for the next 2-3 years as you try to get back up on your feet and that you intend on staying at the property until the bankruptcy is expunged from your credit history.
Lease to own option
If you need to stay within the area for family or other personal reasons, why not negotiate a lease to own option? Smaller landlords will be more receptive to this because they feel like they are getting too old to manage tenants or don’t want to be a landlord anymore for some other reason. Negotiating this option can solve your problem of going through the motions with each rental landlord and putting you onto the homeownership path.
In a Nutshell…
Renting an apartment with bad credit may seem disheartening and daunting, but with the right approach, it is feasible. Understanding your credit situation, making efforts to improve it, and presenting yourself as a responsible tenant are vital steps in securing successful tenancy. With some creativity and practical advice, you can improve your credit scores over time and find a suitable place to live.
Frequently Asked Questions (FAQ’s):
Can I get an apartment with a credit score of 500?
Nothing is impossible, but it will limit the number of places accepting you. Most places recommend a score of 600, but you can get an apartment with a 500-credit or even no credit score. Chances are, there will be other requirements for you to fulfill and convince the landlord to accept you to gain tenancy.
What are the five critical components of a credit report?
The five categories that make up your credit scores are payment history (35%), the amount of debt you owe (30%), length of credit history (15%), new credit you apply for (10%), and credit mix (10%). Payment history and credit utilization ratio are the major influencers in your score. You will want to keep your credit utilization ratio below 30%.
The credit utilization ratio is calculated by dividing the balance you owe by each card’s credit limit and for all cards together. Sometimes, a credit card that is maxed out, even if you use less than the 30% ratio for all your cards combined, can pull your scores down. That’s why it is wise to spread the debt amongst all your other credit cards.
Are there negatives to Experian Boost?
Experian Boost only affects your Experian score. The Boost will not be reflected if a lender pulls any of the other two reporting agencies, such as TransUnion and Equifax. Some lenders also exclude Experian Boost when pulling a tri-merge credit report. On average, Experian reports that customers raise their FICO scores by 8 to 13 points after enrolling in Boost. Raising your score can be a game-changer when you are on the cusp of the next higher credit bracket.
How do I find no credit check apartments?
Start online. Make sure to read through the description. Often, there will be a notation on the type of credit and background checks they do. Speak to the landlord directly to ask about their policies and check their reviews on social media.
Explore for rent by owner properties on Craigslist or Facebook marketplace. You will still want to provide the necessary paperwork, such as income verification, references, etc. Remember, your goal is to convince the landlord you are an excellent candidate to let out to.
