Disclaimer: This article is not legal advice. Any legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.
Most landlords, property managers, and real estate agents regard an applicant's credit score as a critical part of the tenant screening process. This leaves many renters wondering how to get a credit score for a rental application. Unfortunately, most owners and agents don't fully understand credit scores and what they mean when vetting prospective tenants.
Credit scores are used for various purposes such as lending, insurance, and even mobile phones. However, getting an applicant's credit score for renting is particularly important when you're trying to assess their ability to meet the financial requirements associated with renting.
This article will go over the top facts you should know about credit scores. We'll even guide you through the easiest way to get a credit score for renting.
1) Credit Scores Range
Although credit scores can vary slightly, most credit reporting sources range from about 300 to 900. Below you can find credit score distribution according to FICO.
As you can see, 58% of Americans have a credit score of 700 or above, while 42% have scores below this amount. So where might your applicants fall?
Other types of credit scores aside from FICO scores may be better to use for renting purposes. One score, TransUnion's "ResidentScore," is specifically tailored to predict rental outcomes. The ResidentScore uses roughly the same range as a FICO but has a slightly different algorithm to provide a score that may be better for evaluating renters. A FICO score is used for a variety of purposes and is not always the best credit score to get for a rental application.
Applicants can check their credit scores for free anytime on sites like Credit Karma. However, you should never take credit score documentation provided by the applicant. Accepting any documentation directly from applicants leaves the door open for possible misrepresentation and tampering. Instead, always ensure you get a credit score for a rental application from a trustworthy source.
2) The Standard Requirement is 620 and Above
The average accepted credit score for a rental can vary greatly depending on the region, the property, and even your preferences. A good starting point for many landlords conducting a tenant screening seems to be at around a 620 or above to be eligible for consideration. You may have different criteria and may want to see a higher score. As a general rule of thumb, a score at 650 or below will typically trigger a more in-depth look into an applicant's history.
The important thing to remember is that the credit score is just one aspect of an applicant's profile. Most agents and owners take multiple factors into account when vetting tenants.
3) Overcoming a Low Credit Score with Other Attributes
A credit score for renting is a significant criterion you might weigh when you see a rental application. So what can you do if your applicant's score is on the lower side?
- Being able to show multiple years of unbroken rental history with positive recommendations from your previous landlords
- Being free from any evictions on your record
- Having a monthly income that exceeds three times the monthly rent amount. For example, if the monthly rent is $2,000, make sure your applicant's total gross household income is $6,000 (or more!)
For applicants with a lower score, you may want to request an extra security deposit or require a co-signer with a good credit score who can vouch for them.
4) What Damages an Applicant's Credit Score?
Making on-time payments for a credit card is not necessarily enough to ensure a high score. There are many other common mistakes people make that hurt their scores.
- Having a high balance with their credit limit is a common mistake. If their limit is $5,000 and they constantly are spending up to $4,800 each month, this can adversely affect their credit score.
- Another common mistake is maxing out cards. Credit bureaus don't look favorably on this because the applicant is spending a lot compared to their income.
- Having too many credit cards also can come back to bite. From a landlord's perspective, the more credit cards the applicant has, the higher the debt potential.
- Finally, too many hard credit inquiries can damage an applicant's score. Credit inquiries commonly occur when an applicant submits a credit application.
Applicants who show that they can continue to pay off their current credit balances and loans consistently will have a higher credit score.
5) Some Credit Checks can Damage the Score
Many prospective tenants are hesitant about applying to a rental property and allowing you to get their credit score for a rental application. Most credit pulls for tenant screening damage an applicant's score by leaving an inquiry on their credit report.
6) Even Married Couples Have Different Credit Scores
This may seem obvious, but some agents and owners are unaware that everyone has a distinct credit score, even a husband and a wife. That means you need to get a separate credit score for all applicants. Additionally, evaluating applicants differently based on their marital status can be a form of discrimination.
7) No One Has just a Single Credit Score
An applicant's credit score is not a single number. Depending on where you get the score, an applicant could have three different scores representing their credit. This occurs because all applicants' financial activity is not always reported to all three credit bureaus. Also, the timing of reporting this information to each bureau may vary. For this reason, an applicant's score can be different depending on where you got it.
Rest assured, all the sources will have moderately similar scores.
An excellent credit score for renting is called a ResidentScore, and it comes from TransUnion. The ResidentScore is one of the only credit scores designed exclusively for the rental process and not used for other purposes.
8) A Credit Score Is Made Up of Three Categories
Generally speaking, three categories go into a credit score:
- Account info such as credit and loans
- Public records like liens and bankruptcies
- Previous credit inquiries
Personal information such as an address, age, gender, race, and sexuality does not impact the score.
9) Regular Rent Payments Lead to Better Credit Scores
The action of just making monthly rent payments on time can build an applicant's credit score. This helps create a track record and shows that the applicant is responsible enough to pay rent consistently. The only caveat is that the previous landlords would need to report the rental history data to the credit bureaus. If you're not doing this currently, services such as RentTrack can make this process easy.
10) Credit Scores Recalculate Each Time It's Pulled
Most people make the mistake of thinking an applicant's credit score already exists, and each inquiry allows you to see that number. However, the number recalculates with each inquiry.
How to Get a Credit Score for a Rental Application
Now that you have a foundational knowledge of credit scores, you're almost ready to start the tenant screening process for credit scores. After that, it's up to landlords, property managers, or real estate agents to ensure they're not damaging the tenant's credit score. Understanding the type of credit check pulled will help prevent this from happening.
The Difference Between Hard and Soft Credit Check
Each time a landlord looks at someone's credit history when conducting a tenant verification, they initiate a credit inquiry from a credit bureau.
Although all inquiries on your credit are sourced from the same information, be aware that all inquiries are not created equal. There are hard inquiries, and there are soft inquiries.
Hard inquiries typically occur when you apply for credit with a financial institution. These commonly take the form of loans, mortgages, or credit cards. The institution will check your score to assess your creditworthiness based on your credit history. This is an important step in the tenant verification process. However, people are becoming increasingly aware of the dangers to your credit score resulting from property rental applications.
Each time you pay and fill out an application for an apartment, pay attention because the property representative is most likely running a hard credit inquiry.
A hard credit pull sometimes damages a credit score by up to five points for each application submitted. Five points may not seem like much, but many people have to apply to as many as five properties before they are accepted. And some people end up applying to as many as ten. This can decrease your credit score between 25 and 50 points.
Not only are points deducted from your score, but also the inquiries are burned into your report for up to two years. Any future inquiries will reveal your previous inquiries, and this can begin to paint a picture of desperation to lenders who will be much less likely to grant the next loan you need.
This situation is even more devastating for many younger apartment renters because a stable credit history is not yet established. Without a consistent credit track record, individuals initiating multiple hard apartment rental inquiries can seriously jeopardize their ability to get a home mortgage or auto loan down the road.
Soft inquiries usually occur when an individual checks their credit or when a company checks your credit for a background check or pre-approval purposes. Unlike hard inquires, soft inquiries do not damage your score. Agents can perform soft inquiries while verifying tenants to check up on their scores without having to worry about the consequences.
What can I do to protect myself?
The most important thing is to exercise caution and to avoid having too many hard inquiries. Although you can do this by applying to fewer apartments, there are exciting alternatives that you can utilize to protect your credit.
For instance, some apartment rental websites are now allowing the usage of soft inquiries in place of hard inquiries for apartment rental applications in their tenant verification service. The way this works is that the applicant can make a soft inquiry at first as if they're viewing their own credit score.
These websites empower apartment renters to quickly and securely share this soft inquiry with landlords. This occurs completely online and landlords can be sure that that the credit report has not been altered in any way by the applicant. Landlords and agents can finally run a comprehensive tenant verification without ruining their applicants' credit. It's a win-win situation.
With RentSpree, you can access a full credit score and report for each applicant. RentSpree's credit report comes with the best credit score for renting, a TransUnion ResidentScore. That way, you'll be sure you're using industry-leading data for your decision. You'll never wonder how to get a credit score for a rental application again!
Although younger renters with fragile credit histories will benefit from this greatly, people of all ages can take advantage of this credit preservation information to protect their future interests.