What Should You Do When Bad Credit Affects Your Ability to Rent?

I recently posted about what you can do when bad credit affects your job. Besides the impact on your employment, you know that bad credit can also affect whether or not you can get a credit card, a mortgage, lower interest rates or financing. It can also make it hard for you to find housing, especially when you have to rent. Today’s article highlights some ways that your credit history might hurt your rental options, and what you can do about it.

Generally, when you find a place you want to rent, you pay a fee and fill out a rental application. Landlords usually pay tenant screening companies to perform public records searches using the information you provide on the application. The background check and application process helps to verify your identity, ensure that you are a responsible tenant, and show a landlord that you can afford the rent.

Along with other background information, the landlord will also end up viewing your credit history. Consequently, what shows up on your credit report can affect your ability to obtain the rental housing you prefer. There are several items on a credit report likely to raise a warning flag for a landlord.

Unpaid Utilities

The good news: There is no good news, I’m sorry. I couldn’t think of a single positive thing about leaving your former address without paying all of your utilities. This is just a bad idea, so don’t do it.

The bad news: If your name was on the utility account, you are on the hook for the entire amount. Not paying a utility that is in your name will hurt your credit. The utility company doesn’t care that your roommate promised to pay the bill.

  • Default by a roommate doesn’t matter when the bill is in your name. Any collection action, late payment, judgment or negative information will show on your credit report.
  • Why does the nonpayment hurt your renting options? Landlords need you to turn on the heat so the pipes don’t freeze. They will be rightly concerned if your credit report shows a bad history with the utility company, because not having utilities turned on could damage the property they own. It is very possible that non-payment of a utility could prevent you from renting.

What you can do: Work with the utility company, pay what you owe, and get proof when you have paid the bill in full. Keep the receipt to show a landlord or anyone else that needs proof of payment.

  • If a bill is not yours, dispute it promptly. If an item erroneously appears on your report, tell the landlord the bill is not yours and that you have disputed the error. Always provide documentation to support your dispute and the timeline.
  • Be proactive and prepared. Whether you have paid in full or are making payments, ask the utility company if you need to know anything about turning on service from the same utility company at your next address BEFORE you move. Ask them what you can do to make sure there is no problem at your next place. Take names, take notes, and take whatever advice you are given.

Evictions

The good news: Evictions do not show up per se, on your credit report.

The bad news: Prior evictions can show up in other ways, since other records are also searched. On your credit report, an eviction might appear as negative information. The eviction can appear as a collection account or a judgment.

  • If you are evicted and a balance is owed, that debt could be sold to a collection agency, and a collections action will show up on a credit report.
  • If your former landlord filed suit for rent or damages you owed but did not pay, that landlord could have obtained a judgment, and a judgment will show up on your credit report as well.

What you can do: Respond to a landlord just as you would with a utility company, as mentioned above. Be proactive and make arrangements before you miss a payment or move out. If a mistake about your rent has been made, be prompt and dispute it. Always save your receipts and records.

  • Don’t break your lease. Promptly pay any rent or late fees you owe in full. Leave on good terms and clean your empty apartment. When you leave, you can ask the landlord to write a good recommendation for you. Keep all recommendations as part of your financial records.
  • If you default, promptly negotiate a payment arrangement and stick with it.
  • Talk to your landlord about the situation before you are evicted or you break a lease. There may be options available to you. For example, you can ask for a rescission (to end the lease) if you must leave before the term of the lease ends. If you have roommates, ask a landlord to remove your name from lease when you move out.
  • To a potential landlord, an eviction makes you look like a risky tenant who will not honor a lease. You can still try one of the options below:
    • If a bad debt appears, but is not due to an eviction, you can point that out.
    • Try to give details about the debt that will help you explain how you are addressing the issue.
    • Offer information that shows you are a responsible and trustworthy tenant despite the evidence of bad debt.

Roommates’ bad pay history

The good news: Landlords are unlikely to report late rent to the credit bureaus, so late rent is unlikely to show up on a credit report.

The bad news: Your roommate’s default could still come up in a couple of ways. One way would be if your former landlord reports it to the tenant screening company. Like an eviction, late rent can appear in parts of the records check not related to your credit report. Late or nonpayment of rent, similar to evictions, could also show up on your credit report as negative information. This is because leases usually hold each tenant responsible for the entire rent, not just a portion.

  • Don’t forget the lease (which is between the landlord and all tenants), contains terms that are enforceable by a court. These terms free the landlord from any roommate drama, and ensure the entire rent is paid no matter how irresponsible your roommate turns out to be.
  • Your rent splitting agreement with your roommate is very likely an informal, friendly arrangement, and not enforceable by a court.
  • So when you pay “your part” of the rent, but roommates do not pay their part, you can be held legally responsible for the unpaid rent and any late fees.
  • Your roommates’ unpaid rent could possibly show up on your credit report as bad debt, collections or a judgment.

What you can do: Do not sign a lease with roommates you do not know well. You can ask for an informal arrangement with roommates, but be aware that landlords usually require all tenants to sign the lease. You can beg your roommate to honor the lease terms, but if she or he does not, their nonpayment becomes your credit risk. You might have to pay “their part” of the rent to save your own reputation, rental history, and credit.

TLDR: Quick summary

What if you know you have some dings on your credit report and you need rental housing? Here are a few suggestions:

  • If you have no credit or you have bad credit, you will either have to address it, hope a landlord overlooks it, or else seek rental housing that does not do such checks.
  • How to address it:
    • Be aware that bad credit will make your rental search more challenging. Being ready for the bad credit discussion helps you prepare what to do and say. Practice explaining to a friend. Be honest and stay calm when the subject comes up.
    • Mention your credit issue ahead of a background check. Say that you need to spend wisely, and you are saving for rent, deposits and utilities. Ask if your credit problem is a barrier to renting, before you pay a nonrefundable application fee.
      • Obtain a recent credit report so you can talk about your issue. Be aware that a landlord does not have to, and probably will not accept a credit report you bring in place of doing a regular background check.
      • Explain the credit issue and the circumstances that lead to it. If there have been any changes that work in your favor, highlight those changes in your explanation.
      • Explain what you are doing to fix it. Sometimes, knowing that you have worked with a creditor, negotiated a payment plan or gotten new employment, helps a landlord make a decision favorable to you.
  • Money talks. If you have the funds, ask if you can make a larger security deposit or if you can pay a couple months of rent up front. No, most people do not have that much money, if they did, they wouldn’t have credit problems. But occasionally you might have a settlement or some other source to fall back on. If you are so fortunate, use it wisely.
  • Ask if you can have a shorter lease.
  • Sometimes you have to consider getting the lease or utility in a roommate’s name.
  • Get a co-signer for the lease.
  • Clean up your credit. Sometimes you have to start from scratch. It takes time to develop a positive pay history, so learn from your financial mistakes and start rebuilding today.
    • If your credit woes are due to ongoing problems with your personal finances, Apprisen may be able to help. We are a non-profit financial empowerment agency with 60 years of experience. Call Apprisen at 800-355-2227 or visit us online.

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