When renting an apartment in the USA, there are two basic things that you need. First, you need to prove that you are able to afford the apartment for the duration of your lease. Second, you need to have a good credit score.
Your credit score is basically your financial history at a glance. In a nutshell, your credit score shows how “trustworthy” you are in terms of financial transactions such as applying for a loan, applying for a mortgage, and yes, applying for an apartment rental.
Obviously, the better your credit score, the better chance you have of being approved when applying as a renter.
So, how does having a bad credit score affect your rental applications, and can you still rent an apartment even if you have a bad credit score?
Let’s find out!
“Good” versus “Bad” Credit Score
The credit score model designed by the Fair Isaac Corporation is known as FICO, and it is the most commonly used credit scoring system used in the USA. Your credit score is based on your credit history, which can be influenced by various factors such as the number of bank accounts you own, the amount of debt you have, and how timely you repay debt.
While it can be a bit complicated to understand, you can boil down your credit score into a simple principle: if you repay loans on time and you don’t take out more debt than what you earn, you’ll likely have a good credit score.
The FICO scoring system is numerical and ranges from 300 to 850. Here is the complete FICO scoring system at a glance:
In terms of renting an apartment, property owners will generally look for applicants who have a “good” rating or better. While you can still get approved if you have a “Fair” rating, you should expect that your landlord will ask for more assurance towards your financial capacity. You might be asked for references from previous landlords or a certificate of employment.
There are many reasons why you could have a bad credit score, such as defaulting on loans or filing for bankruptcy. If you have been served a lawsuit in the past for failing to pay rent, this can also lower your credit score significantly.
Take note that financial delinquency is not always the reason for bad credit. If you are a student or a foreign worker living in the United States, your lack of credit history can also be the cause of a bad credit score even though you are not financially delinquent.
Is a Bad Credit Score an Automatic Disqualification?
It depends. Some property managers and owners are very strict when it comes to their requirements. If you have a credit score below their necessary rating, they will not accept your application until you improve your credit score. However, some property managers are still willing to accept tenants with bad credit, albeit with some caveats that we will discuss below.
Before you start looking for an apartment, you should know your credit score whether it is a strict requirement or not. To get your credit score, check with any of the three major credit bureaus: Experian, TransUnion, or Equifax. Most landlords also use these three bureaus to conduct background checks on their applicants, so you will be getting the same information.
Finding Landlords That Don’t Check Credit Scores
If you have bad credit, you can still apply for an apartment with a landlord that doesn’t conduct credit checks. However, avoid apartment complexes that are owned by property management companies since they are usually strict with their credit requirements. These properties don't allow applicants to rent with bad credit.
The best thing for you to do is search for apartments that are privately owned by individual landlords. They are usually more lenient and willing to take a chance on an applicant who doesn’t have a good credit history. However, in exchange, they will usually look for a good history of renting and proof of financial stability.
You can check online listings on Craigslist, but this will require you to sift through tons of postings to look for privately-owned apartments.
5 Things to Do If You Have Bad Credit
If you can’t find an apartment in your area that doesn’t require a credit score, you shouldn’t give up hope just yet. There are still five things you can do to possibly improve your chance of getting approved for an apartment even with bad credit.
If you already know that you’ll run into issues once the landlord conducts a background check, don’t wait for them to pull up your credit history report. Be upfront during your application. Give them concise information about why you have a bad credit history and be ready to answer their questions directly.
Your willingness to discuss the issue head-on will demonstrate your honesty, and it might convince your landlord to find a compromise.
Be Ready to Put Down a Bigger Deposit
According to a study by the Zillow Group, the average security deposit is around $600 for renters with good credit or better. Therefore, if you have bad credit, you might be asked to put down a bigger deposit. This helps mitigate the risks that your landlord will take in approving your rental application and give them a “buffer” in case any issues arise with your rent payments.
Show Your Payslips
Proving that you can pay your rent even if you have bad credit can help improve your chances of getting approved. Remember, having no credit history is the same as having “bad” credit, so if you’re a foreign worker with a high-paying job, you can use your payslips as a way to demonstrate your capacity to pay rent on time.
Landlords will look at your debt-to-income (DTI) ratio to see if your income is enough to cover your monthly rent. This shows the percentage of your income that goes towards paying your living expenses, including your rent. The ideal DTI ratio is 35% or lower.
Consider Becoming a Sub-Leaser
Finding a roommate can also work in your favor. If your potential roommate has good credit, they can apply for the apartment. Once they get approved, you can sublease the apartment under them.
If you choose this option, make sure to read the terms of the lease thoroughly if subleasing the apartment is allowed. Some property owners do not allow subleasing apartments to prevent issues with collecting rent.
You can also ask your roommate to act as your co-signer if they are willing.
Find a Guarantor
Using a guarantor is one of the best ways to get approved for an apartment even if you have a bad credit history. You can opt for having a family member or a friend act as your guarantor, or you can hire third-party services. There are dozens of companies that act as guarantors for apartment renters.
Keep in mind that having someone act as a guarantor or co-signer on your behalf also puts their credit score on the line. If you default on your rent, both you and your guarantor will take a hit on your credit score.
Make sure that you can afford the apartment for the whole duration of your lease before you get a guarantor.
Can I reapply for an apartment if I get denied because of bad credit?
Generally, yes! Most apartment complexes won’t blacklist you if you have bad credit unless you have a long history of financial delinquency. You can even ask the property manager how you can improve your credit score to a point where you will be in a better position to apply for an apartment in the future.
Is there a “minimum” score I need to apply for an apartment?
While there is no “universal” minimum score that you need to rent, most landlords will look for a score of at least 650.
Renting an apartment with bad credit takes a bit more work, but it’s not impossible. With a little bit of luck, you can find a landlord that will approve your application even if you don’t have the best credit history.
When you really think about it, the worst-case scenario on your end is that you won’t be able to apply for the apartment that you really want. In this case, you should take the chance to rebuild your credit and improve your score so that apartment hunting becomes easier down the road.