Everyone hits a rough patch now and again. Whether it was an unforeseen, sudden event or a steady decline into credit mayhem, you now have bad credit. While you may think it’s impossible to rent an apartment with bad credit, have no fear! It may be more difficult, but it can be done.
The first thing you need to know is: how bad is it, really? You can monitor your credit by getting a free credit report at annualcreditreport.com. This is a government-mandated website and is completely free. (Beware of websites that want you to pay for your report. They will claim it is free but then ask for credit card information.)
What is a good credit score?
Now that you know how to check your credit, you’ll want to know what to look for. Yours might not be as bad as you think! Credit scores range from 300 to 850. Anything below 579 is “very poor.” Between 580-669 is “fair,” and 740-799 is “very good.” Anything over 800 is “excellent.”
There are three major credit bureaus you need to be aware of: TransUnion, Equifax, and Experian. You won’t have the same score across all three – each has their own way to determine your FICO score.
So what is FICO, anyway? FICO is a company that specializes in “predictive analytics.” (Which is just a fancy term for judging what you might do in the future by what you’ve done in the past.) The name “FICO” is derived from the company’s original name, Fair Isaac Company, which was founded in 1956 by Bill Fair and Earl Isaac. (Just in case trivia is a hobby. You’re welcome.) Most major lenders in the country use FICO to determine credit. Your score is determined by a top-secret method that basically includes your payment history, the length of that history, how much you use credit, and the mix of your credit (this predicts how well you handle different types of loans, such as a car loan, credit cards, mortgage, etc.). Each section is given a weight, with your payment history as the most important factor – 35 percent of your total score.
Another 30 percent of your credit score is determined by your credit utilization. Do you routinely max out your credit cards? If so, then you utilize too much credit. This indicates that you don’t handle debt responsibly. The best way to improve this section of your score is to keep low (or zero) balances on your credit cards. Don’t close these accounts – just pay them down. Credit cards are very important in showing your ability to handle debt (more so than a car loan because credit cards are revolving balances). On the flip side, credit cards also do the most damage. Keep your balances below six percent.
So why don’t you close them? You have something called a “utilization ratio” that figures into your FICO score. Keeping that line of credit open with a zero balance increases your utilization ratio. The minute you close the account, you no longer have that line of credit to factor into your overall score. Your credit can also suffer if the bank or lender closes your card because you don’t use it.
What do apartment communities look for?
Apartment communities typically look for credit scores 600 or above. If yours is lower, the first thing to do is look over your credit report for any mistakes. It’s important to correct mistakes quickly since items can stay on your credit report for up to seven years (except in the case of a bankruptcy, which stays on your report for 10 years). Get these mistakes taken care of and it might improve your score.
To fix a mistake, put it in writing. Explain why the information is inaccurate and send it directly to the credit reporting company. The company will investigate your complaint and respond back in writing within 30 days. If the correction alters your credit report, they will provide you with an updated copy of that, as well.
After contacting the credit reporting company, write to the lending company that made the error and explain why you are disputing the item. Include any documents (such as receipts) you may have to support your claim. If they made a mistake, they must contact the credit reporting companies and have your information corrected.
Ways to Help You Rent an Apartment with Bad Credit
1. Be up-front about your credit.
Okay, now that you know what your credit score is and exactly what is on your report, you are armed with knowledge and ready to get that apartment! Dress up a little (not overboard in your favorite suit – or tux – but not your ripped jeans, either) and treat the apartment application process like a job interview. This will improve your odds, even with a less-than-stellar credit score.
Be ready to explain your credit issues and how you are handling them. If you are making strides toward improving your credit score, this might increase your chances of being accepted. Bring along proof of income (like a pay stub) or have your employer write a letter verifying your employment status and income. Information about your current checking and savings balances might help, as well.
2. Make Sure You Can afford the Apartment
First, make sure you can afford the apartment. The rent shouldn’t be more than 25-35 percent of your monthly income. If you’re trying to rent an apartment out of your price range, the apartment manager may think you have a habit of overextending yourself. Think of your rent as an excellent opportunity to improve your credit score by consistently paying your rent on time. If the apartment is even slightly over budget, it may be more difficult to make those payments and reach that goal.
3. Pay a Higher Deposit
To use a (in this case, rather irresponsible) gambling term, consider upping the ante. You can offer to pay a higher security deposit, for example. If you can pay a month’s rent (or two) in advance, this might give the apartment manager a sense of security, knowing they will have a reserve in place to cover costs in the unlikely event that you don’t make a rent payment.
4. Pay by Direct Deposit
Offer to pay rent through automatic transfer. If you have the rent automatically deducted from your checking account every month, this can help you get approved even with poor credit.
5. Get a Cosigner
If you can’t afford to pay in advance, pay a higher security deposit, or pay rent through automatic transfer, consider getting a cosigner. Just as with a car loan, this person would be held responsible if you default on your rent.
6. Find a Roommate
But what if you can’t get someone to cosign or you don’t want to ask someone to do this for you? Then your next option is to find a roommate with good credit. If your roommate has a good credit score, the apartment manager may be willing to overlook yours. Or, if the roommate is agreeable and the apartment community will allow it, just have the roommate sign the lease.
7. Get References
Will a former landlord vouch for you? A poor credit score doesn’t necessarily mean you don’t pay your rent on time. If this is the case, a letter from your former landlord may be all you need to convince your new property manager to overlook a lackluster credit report.
8. Find a No Credit Check Apartment
Finally, skip the credit check altogether. Instead of looking at large apartment complexes often owned by property management companies, consider looking at smaller, independently-owned apartment buildings, duplexes, or houses. While property management companies usually insist on a credit check, independent landlords may not – or they may be more willing to overlook it if they feel good about you. If you can plead your case directly to the property owner, you may be able to overcome the bad-credit hurdle and get the rental of your dreams.