Bad credit can haunt you. You may still have to deal with your money mistakes years after you've gotten your finances in order. A bad credit report can make some tasks difficult: renting an apartment, for example. If you're having trouble renting because of your credit history, here are a few options.
Know Your Credit Report
Yes, this is basic. But it's fundamentally important. You should periodically review your credit report to know what's on it. If there are errors on your report, you'll need to have them removed by disputing them.
More importantly, if you have bad credit, you should take steps to improve your score. We've written about this in detail, but here are a few general tips to get started:
- Pay credit card bills on time.
- Respond to collection agency phone calls immediately.
- Don't close an account that's in good standing.
Be Prepared to Explain
You can include explanations for negative items on your credit report, and landlords can review these explanations. Sally Herigstad of CreditCards.com advised one couple challenged with a bad score:
"If either of you have negative marks for which you have an explanation — for example, if your boyfriend was unemployed or hospitalized when he fell behind on bills — add a 100-word statement to your credit report."
You can also provide an explanation letter when you submit your rental application. Note the red flags on your report and consider explaining them in a note to your landlord. The Nest offers tips on how to do this. For example:
- If there are errors on your report, include proof, if you can.
- Point out any progress you've made in repairing your score.
Ask for a Recommendation
Your previous landlord(s) might be willing to write a letter of recommendation for you. The San Francisco Gate suggests:
"If you have been current on your rent in previous apartments, ask former landlords to highlight that. Give your references and cover letter to your prospective landlord along with your rental application."
Offer an Incentive
MSN Real Estate suggests a few compromises you can make to nab an apartment with an unappealing credit history:
- Offer to move in immediately: Landlords want to start earning revenue as soon as possible. So they may agree to take on the risk if you move in quickly and show stability, MSN reports.
- Suggest a shorter-term lease: Agree to a lease of three to six months. This way, you can prove to your landlord you can pay, and they can consider renewing when the lease is up.
- Agree to a larger security deposit: If you can afford it, you might consider offering to pay a larger security deposit, MSN suggests. They add to know your rights before agreeing to this, as rental deposits are capped in some states.
You can also bring cash or a checkbook with you when you check out units. If you can pay on the spot, you might increase your chances of nabbing the apartment. San Francisco Gate suggests offering to pay as much of the rent as as possible in advance.
Stay Within Your Affordability Range
Obviously, if you earn a strong income, that can work in your favor. But you can also increase your chances of being approved by trying to stay within your affordability range. Owners consider a tenant's "rent-to-income ratio," MSN reports. Tenants who spend 35 percent of their annual income on rent is ideal for owners. Mia Melle of Rent Today tells the site:
"'If their rent-to-income ratio is only 25%, we would consider that a positive factor,' she says, adding that sometimes applicants might be approved for a different property that's more appropriate to their affordability range. Staying within your affordability range also ensures that you're less likely to stretch yourself too thin and potentially damage your credit later."
Look for Independent Owners
Independent landlords or property owners might be more willing to work with your situation and consider your explanations. Apartment management companies usually have a set of corporate guidelines they follow for application approvals.
Find a Co-Signer
Of course, many applicants enlist the help of a co-signer. Co-signers must have decent credit and agree to take responsibility for the lease in case the applicant fails to do so. Don't make this decision lightly. As Apartment Guide points out:
"If you weren't able to pay your rent and your co-signer couldn't cough up the money on your behalf, your landlord would be entitled to name you both in a lawsuit. Second, how would your relationship with your co-signer change if you had to ask him or her to pay your rent? Before any signatures appear on your new lease, make sure you discuss with the person you've chosen what co-signing may entail."
Apartment hunting can be a big enough headache on its own. Bad credit adds stress to the process. If you're haunted by your credit history, consider these options if you have trouble renting.
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