Your credit score can affect your ability to rent an apartment because landlords and property managers use a renter’s credit history and credit score to predict if a renter will pay their rent on time. Credit scores range from 300-740 or higher; a score of 300 indicates poor credit, while anything above 740 represents excellent credit.
Your credit score changes depending on how you use your available lines of credit and how responsible you are with your payments. Lenders, credit bureaus, landlords, and property managers use the FICO 9 score chart, where a score of 629 is considered fair credit. To qualify for most rental property, a renter needs a score of at least 629.
So if you’re below that 629 fair credit number, how can you improve your credit score to qualify for an apartment?
Here are eight ways to move the needle on your credit and get closer to the magic credit score of 800.
- Check Your Credit Score
To start, you need to know your credit score and fix any errors on your credit report. This takes a little time – start by requesting your credit report from one of the three major credit bureaus: TransUnion, Equifax, and Experian; each allows individuals to request one credit report per year at no charge. Visit www.annualcreditreport.com for more information.
Review your report carefully and look for any errors or inconsistencies. Even something as simple as incorrect personal data – like your name with the wrong middle initial – could actually be tied to someone else’s credit and affect your score. Other errors to look for include reporting closed lines as open and vice versa, incorrect payment dates, incorrect dates for when you opened a credit line, being listed as the owner of the line when you’re an authorized user, and more.
- Avoid Too Many Hard Credit Inquiries
A “hard credit inquiry” results when a creditor requests your credit report to determine if they want to approve you for a new credit line, such as a car loan or credit card. They want to see your credit picture to assess their risk if they extend credit to you and want to assess your ability to make an additional payment.
A series of hard inquiries within a short period, say a few months, is a red flag to the lender because it suggests you might be in a cash bind if you’re applying to open multiple new credit lines. The best approach is to space out credit applications over the year to avoid a blitz of hard inquiries hitting your report all at once.
- Make On-time Monthly Payments
Your payment history determines a large chunk of your credit score, as much as 30%-35%. You can improve your score, even on a payment plan. Missing payments can lower your score quickly; on the flip side, making consistent on-time payments can increase your score, even if you only make minimum payments. If you face a financial challenge, reach out to the creditor and set up a payment plan you can stick with; consistency is the key.
- Consolidate Your Current Debt
Consolidating debt can be a good plan if you must currently make payments each month on multiple debts. The key strategy here is to consolidate by closing the card account with the highest interest rate once you’ve paid it off and using the new card for emergencies only. Look for a credit repair loan or even a card with a lower interest rate and balance transfer offer to allow you to consolidate bills into one payment. You will improve your credit score when you consistently make that one payment.
- Keep Your Credit Utilization Below 30%
Credit utilization, or credit usage, is the ratio of the amount of your available credit you use compared to the total amount you have available. According to Experian, borrowers should strive to keep their credit utilization to 30% or less. If borrowers go over 30%, their debt-to-income ratio will be too high to qualify for an apartment. Again, making consistent payments is key to keeping your utilization under 30%. Also, be sure the credit bureaus have your most accurate income information on file; your income may have increased or decreased, affecting your debt-to-income ratio.
- If you don't have credit, apply for a credit card
While you don’t need a credit card to build credit, it can be a helpful tool to prove you can be a responsible borrower and, thus, a responsible tenant. When looking at a new card, learn whether the creditor reports your payment activity to all three credit bureaus. Not all credit cards report to all three; they typically report to one. This is good, but if that’s not the credit bureau the landlord or property management company uses in their tenant screening, you’ll have to pay for another to show your payments and credit history.
If you have fair (below 639), poor(below 619), or bad credit(below 580), consider applying for a secured credit card. A secured card allows you to control spending by opening a deposit account; your credit usage is debited from that account. A secured card functions like other credit cards because it reports your payments and can thus add positive information to your credit report.
- Report other monthly bill payments to a credit bureau
A rent reporting tool can help you report your rent payments to the credit bureaus each month to improve your credit score. Some reporting tools will also report utility payments. Many charge an upfront fee in addition to an ongoing monthly fee. However, if you’re paying your rent monthly, you might as well get credit for it and improve your overall score so that the cost can be well worth it. Rent reporting services report past and future rent payments to all three main credit bureaus. If you’re making rent and utility payments on time, consistent reporting will help you get much closer to your goal of an 800 credit score.
- Avoid Closing Consolidated or little-used credit accounts
Closing a credit account makes sense when consolidating debt prevents you from over-extending your credit usage. However, outside of that circumstance, closing an old credit account can actually hurt your score by reducing your overall available credit. The age of a credit line is also an essential factor for your score. Your credit accounts should have an average age of three years to give creditors a reliable timeframe to assess your credit habits. An account you’ve held for over three years will give creditors a good idea of your spending habits and credit performance; when you close an older credit account, it will decrease the average age of your accounts.
How long does it take to improve your credit score?
Rebuilding credit takes time, but when you make consistent payments, keep an eye on your credit utilization, and use a rent reporting tool (especially one that records utility payments), you can systematically attack the process and improve your score sooner. Disputing inaccurate information, errors, or excessive hard inquiries can take up to two years to remove from a credit report.
Improve your credit health with a rent reporting service
If your credit is poor or fair, but you’ve still managed to pay rent consistently, consider reporting your rent. Not only will your credit score improve, but your record of rent payments will prove to a landlord or property manager that you can be a responsible tenant. Some rent reporting services claim they have helped renters increase credit scores by 20 points after submitting 24 months of their past rent payments.
RentSpree is a property management platform that allows tenants to safely and securely apply for apartments, undergo tenant screening, sign leases, and make rental payments. RentSpree will soon be adding a rent reporting service to their suite of tenant services to support tenants who want to improve their credit scores and eventually reach that perfect 800 score.