The information in your credit history is a powerful predictor of your future bill paying performance. Creditors know this, and that’s why mortgage lenders, auto dealerships, and insurance companies use credit reports in their decisions as to whether or not to extend you credit.
One aspect of your life affected by your credit report that you may not have realized is your ability to rent.
Landlords may use your credit history to screen your ability to pay the rent on time, consistently. Good or great credit opens all types of options, and poor credit gets many of those same doors slammed in your face.
If you are planning to rent a place to live, knowing how your credit score may be used to screen you, and how it should not be used, is important.
First, landlords are entitled to use information in the credit report for screening purposes.
A landlord’s right to use credit reports for rental decisions is outlined by the Federal Trade Commission as a permissible purpose. While some people look at it as an invasion of privacy, landlords are well within the law when they use these reports to decide whether or not to extend a rental contract. When applying to rent, your potential landlord may weigh several factors on your report to determine your creditworthiness. Do you pay your bills on time? Are your credit cards maxed out? Do you have any collections, liens, or bankruptcies showing up?
Landlords may also use the credit report as evidence that you are who you say you are. Does the social security number match the name you gave them? Does the address match? Is there an OFAC flag returned?
Credit reports offer landlords tons of valuable information on you, as the would-be tenant.
In addition, landlords can deny you the ability to rent because of information found in your credit report.
A landlord runs a tenant credit report to minimize his or her risk. They want to feel confident that the tenant will pay the rent on time, take care of the property, and act responsibly. A person who pays bills on time and keeps their debt load low is generally a better, lower risk option.
Landlords can increase the down payment amount on a renter with fair or bad credit, require a co-signer, or decide not to rent to that person at all. This is perfectly legal.
If you have prior issues with your credit, prepare yourself to deal with the likelihood of paying more up front to move into a rental home.
Landlords can also require tenant candidates to pay for the report.
A common practice when applying for a rental house or apartment is to pay for your own credit report. While it’s a bit frustrating on the front end, because you don’t know whether or not the rental agreement will ever happen, these costs are typically negligible, usually totaling under $50.
When determining who to choose as a renter, landlords use of credit reports come with responsibilities and requirements. There are two specific actions landlords are not allowed to take in terms of an applicant’s credit.
A report can’t be pulled without permission.
Before a landlord, or any other company, can use your credit history to make decisions about you, they must ask for your signed authorization. Landlords may add this disclosure to the initial rental agreement, or it may be a separate document. Either way, there is little danger of a landlord looking at your credit report without your knowing about it.
A report can’t be used to discriminate.
Under the Federal Fair Housing Act, landlords are prohibited from denying housing on the basis of a number of instances, such as race, age, or religion. If evidence of these factors are found in your credit report (your date of birth, for example) it cannot be used to determine whether or not the landlord chooses to rent to you. If you ever feel discriminated against, make sure to lodge a complaint with the U.S. Department of Housing and Urban Development (HUD).
If you are planning to find a place to rent, here are three key moves to make in advance to help your credit report look as favorable as possible.
1. Pull a copy of your report. Go to www.annualcreditreport.com which is a site supported by all 3 credit bureaus. Pull your credit report and go over it thoroughly. Are there any debts that you don’t recognize? Are your balances correct? Are your name, address, and social security number showing correctly? Unfortunately, many credit reports contain errors. Don’t let a mistake on the bureaus’ behalf keep you from renting the house or apartment you want!
2. Dispute errors. You have a right to file a written dispute with the bureaus that are reporting the error. Keep copies of everything you send in supporting your claim, and a timeline of correspondence. Credit reporting companies typically research and answer your claim within 30 days.
3. Get current on debts. While little can be done about other negative information that may be on your credit reports, such as collections, liens, etc, you CAN fix current late payments. Landlords tend to view current late payments as really bad news. If any of your debts are late, pay them immediately, and give them time to clear through your credit report before sending in any rental applications.
These three tips will give you a better chance of securing the rental property you want.
While you may not have known your credit history carried weight in whether or not you are accepted as a tenant, don’t let it freak you out. If you have managed your finances wisely, you have nothing to worry about. However, credit missteps may cause you to be passed over by landlords, or charged a larger deposit. Pulling your credit report and understanding your debts in advance will help you be prepared, and help you build the best picture of your credit history possible, before the landlord sees it.