Why Do Landlords Require Credit Checks?

Posted by Pam Hill in HousingNovember 17, 2022(Last Updated November 17, 2022)5 min read
Key Takeaways
  • Landlords and rental agents perform credit checks because they want to ensure that a potential tenant can pay the rent on time.
  • Going through the credit check process for a home can be particularly stressful, as the results impact your ability to rent an apartment or house.
  • If your credit score is on the low end or your credit history is thin, co-signer agreements, bigger deposits, and showcasing your income sources can all help you pass a rental credit check.
Are you ready to make some real money moves?

When looking to rent an apartment or a house, a credit check is usually step one in the process. Successfully passing the credit check process doesn’t have to be a source of concern as long as you prepare in advance. Let’s dive in to understand the what and why of credit checks and tips for ensuring that you pass your next credit check with flying colors.

 

Why Do Landlords Perform Credit Checks?

 

Landlords or their representatives, rental agents, conduct credit checks because they want to ensure that a potential tenant can pay the rent on time and in full. A credit check will also show your landlord your credit history.
 

Sometimes a late or partial rent payment comes entirely out of the blue, such as with a sudden job loss or large expense from an emergency. The credit check serves as a barometer of how often other bills that the prospective tenant has had, from the rental of previous apartments to car notes to credit cards, have been paid late or not at all, and the amount of the late or unpaid debt.

 

Recommended Read: 3 Tips to Build and Improve Your Credit Score

 

What’s Included in a Credit Check?

 

Before a credit check is conducted, the rental applicant (or applicants, if more than one adult will live in the home) gives their written permission. This permission occurs through signing a credit screening document or a rental application with language permitting the performance of a credit check.
 

Written permission is required because the credit check is a hard inquiry of credit data. A hard inquiry also called a hard pull, occurs when the rental agent requests a credit report from a credit bureau. Lenders also use hard pulls when you apply for a car loan, credit card, mortgage, or personal loan.
 

Some rental agents will use the same credit bureaus that provide FICO scores to conduct credit checks, while others will use credit services provided by professional tenant screening companies. In either case, the credit check process will result in a report for each applicant that includes the following:

 

  • Full name and aliases
  • Social Security number
  • Date of birth
  • Current and former addresses
  • Total open credit lines
  • Credit history and inquiries
  • Income information 
  • Current and previous employers and addresses 
  • Mortgage or rental payment histories
  • Public record filings such as bankruptcies, tax liens, judgments, and eviction reports

 

Who Pays for the Rental Credit Check?

 

Although a credit check benefits the landlord, the rental applicant almost always bears the cost. The cost is usually incorporated into the rental application fee itself. In rare cases, rental agents will forego the credit check process and accept credit bureau reports if the reports were generated within the last 30 days. However, you should be prepared to pay these costs, which range from a low of $40 to as much as $100 for a credit and background check, plus an application fee.

 

Focused millennial Black business woman calculating money

 

How Do I Prepare for a Rental Credit Check?

 

Knowledge is power when it comes to enhancing your credit, so your first step should be ordering a free credit report in the months leading up to looking for a new rental unit. The three largest credit bureaus—Equifax, Experian, and TransUnion—all provide free credit reports annually upon request.

 

Once you're armed with your credit report, you should then check for and challenge any errors that you see. The three credit bureaus all follow a similar process of allowing you to dispute mistakes online via email or by phone. The bureaus have up to thirty days to respond to disputes. If the bureau agrees with the item that you are challenging, then the bureau must remove the erroneous information immediately.

 

While it is possible to dispute errors on your own, the process can be somewhat involved. Free or low-cost help is often available from government-funded or non-profit backed credit repair firms to help you sort through the process. 

 

Recommended Read: How to Create a Basic Budget in Three Simple Steps

 

What Credit Score Are Landlords Looking For?

 

The credit score range that landlords use varies based on the cost of the unit. Generally, a lower-cost home in a lower-income neighborhood will have a credit score requirement on the lower end of the FICO range, mid 500’s to mid 600’s, and a mid-range unit in a moderate-income neighborhood will require FICO scores closer to the average score of high 600’s to low 700’s.

 

What to Do if You Have a Low Credit Score?
 

If your credit check reveals a credit score that is lower than you thought or a credit history that is fairly sparse, several options still exist for obtaining a place to rent.
 

Accentuate the Positive

 

Showcase your trustworthiness as a potential tenant by providing detailed income records. For instance, rather than just providing your most recent pay stubs for your primary job, if you work a second job, freelance, or do gig work on the side, provide proof of income for this work to give a fuller picture of your ability to pay the rent.
 

Obtain a Co-Signer
 

If your credit is too low or your credit history is too short to qualify you for a rental on your own, ask whether a co-signer who has a higher credit score, most often a relative or significant other, can be used. A co-signer acts as a guarantor, and guarantees that they will pay your rent if you are unable to make payments. 

 

Hand of rental property owner showing tenant where to sign signature contract.

 

If more than one adult will live in the house, for instance, an adult child, a significant other, or a roommate, the rental agent will typically check the credit of all applicants and require all applicants to sign the lease. The second adult, who has the higher credit score, effectively serves as the co-signor or guarantor of the applicant with the lower credit score.
 

Increase Your Security Deposit

 

Another option is to ask if you can pay an increased security deposit to rent the home. Most properties require a minimum of a one-month security deposit plus the first month’s rent. Offering to pre-pay the first few months of rent payments up front, or increasing your security deposit from one month to six weeks, can illustrate that you’re a serious applicant.
 

The Money Wrap-Up

 

It can be stressful to go through the credit check process for a home, as the results impact your ability to rent an apartment or house. However, with some advance planning, you can increase the likelihood of success. 

 

To prepare for the process of renting a place be sure to request and check your credit report early and address any errors. Additionally, obtain free or low-cost professional assistance, if necessary, to help you dispute any errors on your credit report. Remember that landlords often require credit checks before renting out their home, so making sure you are prepared will help you to get the place you want.

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