You’re starting to look for apartments and the applications mention having to do a credit check on you. You find yourself wondering what will happen, if anything, to your credit score when they do.
What if you have no credit history? Does a credit check even do anything? Once you start renting, what does completing payments do to your credit? What happens if you miss a payment and what does that do to your credit?
Lots of questions happen when it comes to renting an apartment and whether or not it will help your credit, build your credit, or hurt your credit. We found this article by The Balance that covers all of the questions above and more!
But first, why do property managers pull your credit score in the first place?
They pull your credit score information for the sole purpose of determining what type of renter you have been in the past (if other property managers have reported the information of course). They also pull it to see if you are someone who pays their bills on time in general or if you are behind on payments. While the information they’re given won’t necessarily tell them all that, your actual credit score says a lot about you.
How Applying for Rentals Affects Your Credit Score
Many landlords pull your credit report when you're approving your rental application.1 The hard inquiry that comes from a credit check can affect your credit score.2
Inquiries are 10% of your credit score, but fortunately, apartment hunting may be treated the same as mortgage or auto loan rate shopping.2 In an email to The Balance, a FICO executive confirmed that multiple identifiable tenant screening related inquiries are included in the special FICO Score inquiry treatment logic. In other words, multiple apartment-hunting inquiries are treated as just a single inquiry as long as they're completed in the same timeframe.
Not all landlords or leasing agents pull your credit information to qualify you for a rental. Applying for an an apartment won't hurt your credit if there's no credit check in the process. The application also won't hurt your credit score if the landlord uses a service that does a soft credit check.3 You can ask the landlord for their process to find out whether there's a credit review involved.
Are Rent Payments On Your Credit Report?
More recently, some apartment complexes have begun using a variety of services to report rent payments. All three major credit bureaus offer landlords some rent reporting capabilities. Experian and TransUnion both offer services to landlords and Equifax has partnered with third-party rent reporting platforms to report rental information.4
There are a few third-party companies that work with consumers directly to collect and report information on rent payments: ClearNow, PayYourRent, Cozy, and RentTrack are a few examples.5
How Rent Reporting Helps Your Credit Score
While there has been some progress in credit reporting of timely rent payments, it’s not widespread. If you rent from a smaller company or an individual landlord, it’s less likely that your rent payments will be reported to the credit bureaus.5
Even when rent payments are included on your credit report, they’re not guaranteed to help your credit score. According to FICO, only a small number of consumers see a significance in their credit scores after having rental added is added to their credit report.6
[Continue reading for late rent payments, using a credit card to pay your rent, and what happens when you have bad credit or no credit at all]
Can You Even Rent with Bad or No Credit?
In short, yes you can but not by yourself.
In order to rent an apartment with bad credit or no credit whatsoever you’ll need a co-signer or guarantor. A co-signer or guarantor is someone who agrees when signing the lease agreement that they will be held responsible for paying your rent if you become unable to make them.
We encourage you to be careful on who you agree to be a co-signer or guarantor for as mentioned in the article above your credit score can become affected if the person actually renting the apartment starts to miss payments.
Bottom Line: If you are in good credit standing and pay your payments on time, the only hit to your credit score will be that initial hard inquiry. The rest can only go towards helping your credit.