Content provided by Odysseas Papadimitriou, CEO of WalletHub
If you recently submitted an application to rent an apartment, go and check your credit report because it’s almost certain to contain an inquiry from the landlord or property management company in question. That’s evidence of them evaluating your creditworthiness for the purpose of comparing your overall risk profile to those of other applicants. And your credit report isn’t the only information they’ll use for the job.
Unlike employers, for example, landlords and the like also have access to applicants’ credit scores. And any deficiencies in that regard can cost you dearly, both in terms of cold, hard cash and missed opportunities. In fact, these potential losses can be grouped into three distinct categories, which we’ll explore below to show why it pays for renters to care for their credit scores.
- Limited Options, High Prices: Landlords aren’t necessarily the most sophisticated underwriters, a fact which perhaps increases their likelihood of using simple methods such as only considering applicants with credit scores above a certain minimum threshold. For some, the cutoff point might be 620 – the beginning of the “fair credit” category. Others might use the average credit score of 668. Regardless, the lower your score is on the 300-to-850 scale, the fewer realistic rental options you’ll have. And the choices that remain will likely be characterized by relatively low quality or high prices.That’s not the only way that a low credit score limits your housing options, either. It can also prevent you from getting a mortgage, thus forcing you into the diminished rental pool mentioned above.
- The Lower The Score, The Bigger The Deposit: When applying for an apartment lease, the lower your credit score is, the riskier you are considered to be. And the riskier you are, the less inclined a lender will be to trust you. This principle applies to credit cards, with bad-credit applicants being asked to either place a deposit that will double as their credit line or pay high up-front fees. And it applies to real-estate rentals, too. If your background as a borrower does not inspire confidence from a landlord, he or she will likely try to offset some of the perceived risk by requiring more collateral. That means a bigger security deposit – perhaps two months’ rent instead of one – which will obviously affect your cash flow, if it doesn’t price you out of the opportunity altogether.
- Risky Ratings Restrict Payment Options: Much like low credit scores can trigger higher deposit requirements, the lack of trust borne from a questionable score could also result in an unusually short leash when it comes to payment logistics. Landlords are more likely to require payment at the beginning of the month, for example, and may limit the approved payment methods at your disposal – perhaps requiring cash or a certified check each month.
This all just goes to show that caring for your credit score really does pay off, especially when it comes to finding a place to live. So break from the 52% of people who haven’t checked their score in the last 12 months, according to the National Foundation for Credit Counseling. Find out where you stand and how you can improve, keep tabs on your progress over time and watch the savings pile up.
I’m admittedly quite biased in saying this, but I recommend using WalletHub to do so. It is the only service that offers free credit scores and full credit reports that are updated on a daily basis, in addition to customized credit-improvement advice and 24/7 credit monitoring.
Alternatively, maybe you could just move back home. You can save a whole lot that way, and your parents’ credit standards likely aren’t nearly as high.
Odysseas Papadimitriou is CEO of the personal-finance website WalletHub, which offers free credit scores, full credit reports, 24/7 credit monitoring and customized money-saving advice.
Related post: What Credit Score Do You Need to Rent an Apartment?