If you’re looking for a new apartment, you are likely already trying to figure out what monthly rent fits your budget. However, other financial factors can determine if you’ll be accepted for a new rental property. Though everything from your savings to your salary can impact your eligibility, today we’ll be talking about a common question: Do I need a credit score to get an apartment?
The answer is yes in many large apartment buildings and homes associated with a property management company. This is one of the criteria used to determine if you’ll be selected to rent an in-demand home or apartment. Property owners who only rent out a few properties may use credit scores to mitigate risk and find the most reliable renters.
If you’re a first-time renter, this score matters even more because you won’t have a long list of previous landlords or property managers that can vouch for how reliably you pay monthly rent and utilities.
What does a credit score show property managers?
You might wonder why a credit score matters if you’re not planning to take a loan to pay for the rental. Well, renting is a contract between you (the resident) and the property manager or landlord. If you move in, the owner assumes a lot of risk. They need to ensure that you will:
- Pay rent on time
- Keep the property in good condition (and not break things that will cost a lot to repair)
- Pay all mandatory utility payments on time.
All these issues could result in large bills for the property owner, so they want some assurances from potential renters.
In addition to looking at your rental history and proof of income or employment, most owners will also do a “hard pull” on your credit report. This will allow them to look at up to seven years of credit history and to see your current credit score.
They can quickly assess if you’ve ever made late payments or are heavily in debt. Most owners have a minimum credit score that they’re willing to consider, but that varies based on location and the type of building you’d be living in. In some cities, it could be as low as 500, but in others, as high as 750. This is entirely up to the property owner. Generally, a credit score in the low- to mid-600s should be enough to allow you to be approved.
The score is also an easy criterion to use to sift through many applications for the same property. The owner will often start with those with the highest credit scores.
If you’re moving in with another person, keep in mind that their credit will also come into play during the application process. While you have good credit, their bad credit could be enough to prevent you from being accepted. But, if you have an average credit score and theirs is good, that can increase your chances too.
Does paying rent build credit?
Tricky question. In most cases, unfortunately, the answer is ‘no.’ Although you’re making regular and on-time payments, most property managers and owners do not report that to a credit bureau. Today, only ~10% of Americans are building credit through on-time rent payments.
At Esusu, however, we believe that you should be rewarded for paying your rent on time. After all, many years of responsible housing payments should show creditworthiness regardless of whether you rent or own.
The reason why this practice is not (yet) widespread is because making a direct payment for rent isn’t based on a loan reported back to the credit bureaus. Alternatively, when a home is paid for with a home loan (or mortgage), the credit bureaus are aware, and the payment is recorded.
For now, if your property manager has not yet signed up for Esusu, the best way to leverage years of reliable rent payments is to use prior rental experiences as references for future rental applications. We are also in the process of building an independent renter waitlist that you can sign up for.
Will my credit score go down if I can’t pay my rent?
Should you fall behind or begin missing payments, your property owner or manager will typically start by sending you a warning and helping you develop a payback plan. Initial missed payments will not be reflected on your credit report. (And at Esusu, our rent reporting program only reports on-time payments, never missed or late ones.)
If evicted for continuous missed payments, you do run the risk of being sent to collections. If your account does get sent to collections, that will appear on your credit report as a negative mark and likely bring down your credit score. If you’re at risk of missing a payment, the best thing to do is talk to your property manager about a payment plan.
Credit and your future home
At the end of the day, having a healthy credit score will help you in several areas of life, including securing your next home. Applying for an apartment can be a momentous life event, and you don’t want a poor credit score taking that away from you.
Love your current home, but want your on-time payments counted toward your credit score? Talk to your property owner about signing up for a rent reporting service like Esusu, where you will see the benefits of credit-building at no cost.
Even in the cases when rent isn’t helping increase your credit score, on-time payments are beginning to be recognized when applying for a mortgage. The nation’s largest mortgage lenders, Fannie Mae and Freddie Mac, each announced that they would look at on-time rent payments as a success factor when evaluating mortgage applications of first-time home buyers.
Want to learn more about credit? Our Credit Education hub is always here to help!