As real estate markets have been heating up around the country, we have seen some wild trends in both buying and renting markets. Some cities are seeing incredibly low vacancy rates and competition among potential renters, and credit risk is becoming a more important part of deciding whether or not you can rent your dream apartment or house.
Your Credit History
If you have bad credit, you know that it takes a very long time to fix it. Even if you have cleared everything up and have had perfect credit for the last five years or six years, your bad marks from the past will stay with you for seven years.
Your credit score is made up of these components:
- Payment history – 35% of credit score
- Outstanding debt – 30% of credit score
- Length of credit history – 15% of credit score
- New credit – 10% of credit score
- Credit mix – 10% of credit score
You can read about what each of those represents if you want to learn more about what your credit score means.
How Landlords View Your Credit
When you get a new apartment, your landlord wants to know you are a safe bet. They don’t want a renter to come in and cause damage, skip out on their lease early, or do one of many things that can cost the landlord money.
To make sure you are a good prospect, the landlord will often call a past landlord for a reference and check your credit report. If you have a lot of bad information on your credit report, even stuff that is really old, they might think you would be the kind of tenant that doesn’t pay their rent on time, if at all. That’s not the kind of tenant they want.
Landlords do want responsible renters and families that will pay on time and month and will not damage the property. They want people who care to have a nice, quiet home. Sometimes, however, they have gone through a rough patch in the past and they don’t have great credit. Does that mean the family shouldn’t be able to rent a home?
Traditional Options to Build Security for Landlords
Traditionally, the only way to get on the good side of a landlord if you look like a payment risk, if they consider you at all, is to pay more money. A higher security deposit, pre-paid rent, or higher rent might help them offset what they see as a risky renter.
The problem is, you might not really be a a higher risk at all. You might have just gone through a rough patch after a layoff or bad medical bills. You might have cleaned everything up, but just not made it past the seven year reporting history on your credit report to clear out the negative information.
Is it fair that you may have to still pay thousands of extra dollars up front to get a lease because of that? No, but the landlord doesn’t have any way to know. All they can see is what’s on your credit report. Having worked in a bank myself, I can vouch that when people look at your credit report, they know that most often past performance is the best predictor of future performance.
New Option to Build Security for Landlords
You might have a bad credit history, or no credit history, but still have a stable job that pays you enough to afford a new rental home or apartment. A new company had an idea to automate your rent payments so you never have to worry about paying on time and so your landlord can rest easier knowing that the money will be there on time every month when rent is due.
The idea is to put your rent payments on the direct deposit like you use to put your paycheck in the bank. Even better, they accept the rent payments in installments as a direct deposit each pay period so you don’t have to pay it all at once. This helps you match your income to your expenses. That is a great budgeting tool for people living paycheck to paycheck or who just need a little extra help planning. They do the extra work for you.
On rent day, they send the rent payment right to your landlord’s bank account. No checks to remember, no big rent payment due on the first of the month, it all just happens for you.
This isn’t some sketchy new startup. Your money is held securely in a federally insured account until it is sent to the landlord. Additionally, the company, NPS Rent Assurance, is working with hundreds of rental communities around the country and has built a track record and reputation for being reliable and a great tool for renters to save money while by paying rent on time and avoiding late fees. The process helps you build a solid foundation with a rental community that might have otherwise been unattainable. As an added benefit, NPS Rent Assurance also reports all funds sent to landlords on your behalf to PRBC, a national credit bureau that tracks recurring payments to help consumers build or rebuild credit.
Work toward Great Credit at the Same Time
Never give up the quest for great credit, but don’t let it hold you back either. Work with your landlord to find a solution that is great for both of you.
Have you ever had trouble getting a rental because of a bad landlord reference or bad credit history? What did you do? Please share in the comments.
This post written in conjunction with NPS Rent Assurance. Image by AngryJulieMonday / flickr
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