What do property management companies and landlords look for when they check your credit?
Knowing could make a big difference in your next rental home or apartment search.
A recent TransUnion study revealed that one in two landlords said the results of a credit check were among the top three factors used when deciding whether to approve a lease application. (TransUnion is one of the three major consumer credit reporting companies used by property managers and landlords who decide if a rental application is approved.)
The availability of online credit checks and the increased demand for residential rentals have combined to put more pressure on potential tenants to stand out from the crowd. In other words, landlords no longer need to accept anyone to fill their vacancy.
For many would-be renters, credit-checks are mysterious. Rental applicants usually know if they have good, bad or no credit score at all, but other than that, most have no idea what it means when it comes to their rental application. In fact, many potential tenants have never actually looked at their credit report. All they know is the score that CreditKarma or some other website offered. Because a credit report contains volumes of “mysterious” information, many renters wonder what credit factors other than the score property managers and landlords scrutinize when determining to whom they will rent.
Before we continue, you should know that property managers work for the property owner, not you. Their job is to rent and maintain the property and return the best possible profit to the owner. If the landlord is managing his own property, it is his business and he is looking to make a profit on the thousands or hundreds of thousands of dollars he has invested in the house or apartment building. Neither the property manager nor the landlord is obligated to provide you with living accommodations, so act accordingly.
Property managers and landlords are not looking for perfect credit. They know that if you had a fabulous credit score and a few dollars in the bank, you would probably be a homeowner and not a renter. They also understand small mistakes and medical bills. Regardless, there are things that cause regular rejections of lease applications. The following is a list of factors property managers and landlords consider when evaluating a credit report:
Credit Score. Property managers generally have a target FICO score they accept, though that target score often slides one way or the other depending on the property. Lower scores are often accepted for less desirable rentals while higher scores are demanded for upscale, more desirable and expensive units.
Income. The general rule for the industry is that the lessor’s gross monthly income should be three times the amount of the monthly rent payment. (Gross income is your pay before taxes.) In most cases, this rule is written in stone, especially if the property you want is run by a management company. HINT: There are more than four weeks in a month. If you are paid weekly there are more than four paychecks in a month, or if you are paid bi weekly, there are more than two paychecks in a month. So, if your gross income is close to three times the extra four days in a month could make all the difference.
Evictions. The Credit Monkey works with a property management company that will not rent to anyone who has been evicted within three years of an application regardless of credit score. They believe that it takes three years to sufficiently change someone’s financial circumstances to make an evicted renter a solid tenant. To them, it is another hard and fast rule. Other property managers may use another period of time.
Recent Bankruptcies or Undischarged Bankruptcy. An undischarged or even a recently discharged bankruptcy could indicate financial instability which throws up a red flag to property managers. Even though the Chapter 7 may have given you a fresh start, don’t be surprised if it is the reason your application is denied.
Judicial Liens. Judgements that can be collected by wage garnishment could affect a tenant’s ability to pay his rent. Therefore, if you have an outstanding judgement against you, be prepared for rental application to be rejected.
Utilities in Collections. This is a big one. If you walk away from a large electric bill at former apartment, you may do it again at your next apartment. In many states, if a tenant walks away from a utility bill the property owner is responsible for that bill. Furthermore, in some locales, utilities providers blackmail property owners into paying the former tenant’s outstanding bill by refusing to turn on the electric or gas for the new renter if the old bill is not paid. In the case of utilities in collections, sob stories won’t work. Make an arrangement to get that bill out of collections. Paid diligent bills are not in collections, only black marks on your credit.
Charge Offs. Recent charge-off or repossessions show lack of financial stability or lack of financial responsibility. A potential landlord doesn’t want to be the next person to write off a bad debt.
Criminal Convictions. Felony and drug convictions, regardless of how minor, will haunt you for many years. A conversation about your past with the property manager will usually save you untold aggravation.
If you’re worried about what a potential landlord or property manager might find on your credit report, get your credit report and look at it first so you can have an honest conversation with the property manager or landlord and tell your story so he will know more than what he sees on your credit report.
If you found this post helpful, please leave a comment, share it on social media or send the Monkey an email at email@example.com.