You know that your credit history is critical when it comes to being able to borrow money, but it's not just about "borrowing," or accepting money in a lump sum that you agree to pay back over time. Your credit history can also help determine your auto insurance premium and even affect whether you can rent a house. Many landlords look for tenants with credit scores of at least 700 before they'll rent to them. So what do you do if you've suffered a setback and your score isn't nearly that high? All isn't lost. You have some options.
How Can I Rent With Bad Credit?
You can rent with bad credit but you'll probably have to take extra measures beyond just signing the rental application.
First, know what you're up against. Get a copy of your credit report and do it sooner rather than later. Make sure everything on there is accurate. A study by the Federal Trade Commission revealed that one in every five consumers found at least one error when they reviewed their credit reports so make sure yours is right and give yourself time to dispute any inaccurate information so you can bring your score up.
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You also don't want to be surprised if a landlord turns you down due to bad credit when you always thought yours was pretty good. Be sure to get your report from all three credit reporting agencies because you can't know which one a potential landlord will look at.
Consider tackling the problem head on if your credit is legitimately bad. Don't wait for the landlord to discover it. Tell him in advance. A simple explanation can go a long way, such as, "I know this doesn't look good, but here's what happened, and this is why it's unlikely to happen again."
Can I Get an Apartment Without a Credit Check?
Another possibility is to dodge the whole credit check problem entirely. This means steering clear of all those large complexes run by management companies or corporate owners. These types of landlords are rarely flexible. Private landlords are less likely to perform credit checks on potential tenants. In fact, the credit reporting agency TransUnion® conducted a survey and found that more than half of all landlords – 57 percent – do not do credit checks.
Begin your search on craigslist or in your local newspaper's classified ads. A simple phone call should tell you right off the bat what kind of landlord you're dealing with. If someone answers saying, "XYZ Management Company," you might be out of luck. If he says, "Hi, this is Fred," you've probably found yourself a private landlord who might be willing to accept your explanation for poor credit – if he even does a credit check in the first place.
And if you do happen to get Fred on the phone, you can ask him if he runs credit checks on potential tenants and what he considers when he's approving or declining a rental application.
Four Ways You Can Rent Even With Bad Credit
So now you've found the sweet little house that Fred's renting. Maybe his parent lived there and now Pop has moved into a nursing home, but Fred doesn't want to sell the house. He has decided to keep it in the family and rent it out instead.
Maybe Fred ended up checking your credit or maybe he didn't. Regardless, your credit history is on the table because you were upfront about it when you asked how he approved tenants. Now it's time to convince him to rent to you anyway. What to do?
Try offering proof of your income, such as tax returns or pay stubs. Better yet, ask your employer for a letter of recommendation stating how valuable you are to the company and submit it along with your proof of income. This shows job security and the information can give the landlord a sense of comfort that you do indeed earn enough to make the proposed rent payments and you're likely to be able to do so for a while. You might even volunteer to set up direct debit deposits from your bank account so your landlord doesn't have to wait each month and hope you turn over a check.
If you have the available cash, consider offering more of a security deposit. Anything over and above what the landlord is asking can be tagged for covering rental payments if you don't make them. You're effectively paying rent in advance.
In a worst-case situation – you just can't convince Fred in any other way – consider asking someone to co-sign on the lease with you. This gives the landlord a great deal of security because if you don't make your rent payments, your co-signer is legally on the hook to do so. By the same token, your best buddy might not want to take this kind of risk for you. If you don't pay the rent, and if he doesn't pay the rent, his own credit score can be tanked. You're usually better off asking a family member.
Consider a lease guarantor service if no one else is willing to step up to the plate for you. Do an internet search to find one. These companies will co-sign your lease with you even if your credit history is pretty rough. All they usually want is proof of income showing that you annually earn at least 27.5 times the amount of the rent. If Fred wants $1,500 a month for his dad's house, you could provide documentation showing that you earn at least $41,250 a year. There's a fee for this, of course, but it's usually not prohibitive and it could be worth it if you have no other options.