How to rent with low or no credit
These 8 strategies can smooth over many situations with your potential landlord.
By Susan Johnston of U.S. News & World Report
In recent years, unemployment and other issues have slashed many Americans' credit scores. At the same time, foreclosures and tighter lending criteria have also sent one-time homeowners back to the rental market and kept others renting longer.
If you have credit issues, getting approved for a rental isn't always easy because many landlords and management companies run a credit check on prospective tenants. "This is a real problem right now because so many people got their credit trashed," says Beverly Harzog, independent credit-card expert and consumer advocate.
But there are ways for credit-challenged consumers to win approval from a landlord or property manager. Several years ago, when Eileen Batson and her husband moved to Raleigh, N.C., after a bankruptcy filing, they house-sat for Batson's sister while exploring neighborhoods. Batson responded to a Craigslist ad for a sublet, and the property manager agreed to let them move in. After that lease ended, the property manager agreed to a new lease in their name because they had paid promptly and kept up the apartment. They've stayed in the apartment for several years, which has given them time to repair their credit in case they decide to move.
Here's a look at other strategies for getting approved.
1. Address credit issues before you look. Before setting up showings or filling out rental applications, Harzog says she suggests ordering your credit report from AnnualCreditReport.com to check for errors and see what issues might raise red flags with landlords. If the reason for the issue doesn't indicate irresponsibility — for instance, if it is medical or student-loan debt — Harzog says you can add a note to your credit report explaining the situation.
Mia Melle, president of the Southern California-based property-management firm Renttoday.us, also suggests including a letter of explanation with your application.
"We want to get the person in the property through methods besides looking at a FICO score, so we'll sometimes ask for a letter," she says. "If your explanation sounds reasonable, that could help."
2. Be prepared to pay a larger deposit. Brittney Benson, general manager of the National Association of Independent Landlords, says paying a larger security deposit could sway some landlords.
"It offers financial security because the reason for pulling credit to rent to somebody is to make sure they're financially responsible," she says. "The deposit covers the landlord's losses in the case of damages, so a larger deposit gives them a little bit more they can put toward lost income."
Rental deposits are capped in some states, however, so know your rights as a tenant before agreeing to this.
3. Demonstrate strong income. In assessing a prospective tenant's likelihood to pay the rent, many owners factor in the tenant's rent-to-income ratio. Melle says that spending 35% of your annual income on rent is ideal for owners. But in many cases, tenants apply for properties that will eat up 40% or more of their income.
"If their rent-to-income ratio is only 25%, we would consider that a positive factor," she says, adding that sometimes applicants might be approved for a different property that's more appropriate to their affordability range. Staying within your affordability range also ensures that you're less likely to stretch yourself too thin and potentially damage your credit later.
4. Collect recommendations from your employer or past landlords. Owners may request recommendations from your employer or past landlords, so Harzog says she suggests making a good impression by collecting these letters in advance. Also, pay attention to details like how you're dressed and how you carry yourself.
"Sometimes, these steps create the impression that you're in good shape," she says. "You want to do everything you possibly can to turn the situation to your advantage."
5. Consider getting a co-signer. Having a co-signer to guarantee rent payments can help build trust with landlords, especially if you're a recent graduate moving into your first apartment. As Benson says, however, the co-signer must have good credit, or the landlord is no better off than before. If you can't get a co-signer — or simply don't want to impose on a friend or family member with good credit — a roommate with good credit could also give the landlord some peace of mind and help you save money by reducing your rent-to-income ratio.
6. Focus on independent landlords. Large apartment-management companies may have set criteria for tenants to comply with fair-housing laws, Benson says. But smaller, independent landlords may be more willing to work with tenants individually.
7. Suggest a shorter-term lease. Landlords hate having vacancies or evicting tenants who are behind on rent, so shorter-term leases are less of a gamble.
"You'll sign a lease for three to six months," Benson says, "and then that way, you can prove that you're able to pay. Once the lease is up, they can consider renewing the lease. Or if it turns out you're not paying, they can just not renew the lease without having to evict."
8. Offer to move in immediately. Given the choice between an applicant with good credit who can't move in for a month or two and someone with less-than-perfect credit who can move in right away, many landlords would choose the latter.
"An owner wants to start realizing revenue as soon as possible," Melle says. "They'll assume more risk for someone who's going to move in quicker if they can show stability."