How important is a credit score for a rental application?

How important is a credit score for a rental application?

When you’re looking for a property to rent, there are several factors that you’re likely to consider, like location, access, convenience and facilities. However, landlords have their own conditions they look at.

For some people, it can be rather intimidating to go through all the paperwork needed to apply to rent a property. A rental application is seen as commonplace, whereas other procedures, such as a credit check, are likely to impact how you are perceived as a renter more.

Do you need a credit score to rent a property?

Your credit score is an important number that is used to indicate your financial wellbeing, stability and trustworthiness.  It is a way for people like lenders or landlords to understand whether or not it is risky to get into a financial relationship with you, based on your financial history.

When you’re looking to rent a property, your landlord checks your credit history to get a sense of your capability to pay rent. They will look at your history of repaying or not repaying debts or other financial obligations. A landlord uses this as a benchmark to understand the likelihood of you paying your rent on time, or not.

The higher your credit score, the better, if your score falls for some reason, the chances of the property manager accepting your rental application fails with it. Your credit score will make a difference in whether you get to live in your dream home or maybe have to settle for something else.

What is a good credit score for renting?

Just like other financial relationships, a lease application is more likely to be approved with a higher credit score. A high credit score indicates that you can be depended upon to pay your bills on time like the proposed rent you’ll need to pay.

On the other hand, a low score could raise some red flags about your financial capabilities and could cause your potential landlord to doubt your ability to pay rent on time or at all.

What is a good credit score to rent an apartment? What is a good credit score to rent a house? A credit score of 700 is seen as a good score to start with no matter if you’re looking to rent an apartment or house. Anything higher is even better as potential landlords feel assured that you’re a safe bet to lease the apartment or house.

If your credit score falls below 680, however, you could face some difficulty in getting a rental application approved. And if the score is below 600, it’s likely you have at least two pending collections on your credit report and are seen as a huge credit risk.

Does a bad credit score affect renting?

When looking at your credit score for rental applications, landlords may not always see a low score as a reason to instantly reject your application. Don’t lose hope in case you have a lower score than desired by potential landlords.

Some landlords are more generous and could be willing to consider a tenant with a low score, in the 600 to 680 range. You may just need to put up some other form of additional deposit as a security against possible future problems. An alternative is to get a guarantor to co-sign your lease which gives the landlord peace of mind as they have an alternate payment source if you can’t make payment.

Some other factors that will help you convince a landlord to approve your application include:

  • Having a good reference from a previous landlord.
  • Having a steady job where you can show pay stubs to prove your financial capacity to meet the landlord's rent requirements.
  • Personal references from employers or other people can be useful.

How can I help maintain my credit score?

Every financial decision and action that you take makes an impact on your credit score. This score is calculated by the three credit reporting agencies in Australia, and you may have a different but similar score with each. Here are the factors that are typically used by the reporting agencies to generate your credit score:

Age of credit report: The date your credit report was opened could impact your score, where a newer file may carry a different level of risk than an older report.

Pattern of credit enquiries: A somewhat newer credit file with several enquiries could indicate a different risk level compared to an older file with just a few enquiries.

Type of credit provider: The type of credit provider making an enquiry on your credit report could affect your score.

Credit products: Each credit product that you've held in the last two years generates information and each product has their own impact on your score. This includes the type of credit product (credit card, store card, mortgage, personal loan, etc.), credit provider, credit limit, duration of the account, and joint applicant's name, if any.

Repayment history: One of the more critical factors that impact your credit score is your repayment history. This takes into account the repayment amount, due dates, whether you paid on time and if there were any missed payments. Typically missed payments will be recorded if not made within 14 days from the due date.

Defaults on utility bills, credit cards and loans: Defaults on any payments could be reported by your service provider or lender to a credit reporting agency. The default stays on your credit report for five years (seven years, in the case your lender or provider can’t contact you).

Credit applications: Each time you apply for new credit the provider makes enquiries on your credit report, and those enquiries are then noted on your report. Making numerous applications to different credit providers in a short span of time could negatively impact your credit score.

Bankruptcy and debt agreements: Any bankruptcies, debt agreements, court judgments, or personal insolvency agreements in your name will impact your score negatively.

To ensure landlords consider you a good candidate for renting out a property, you should try to get a credit score that’s as high as possible. 

 

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Learn more about credit score

Do landlords check credit scores?

For landlords, credit score checks can tell if a potential tenant has a history of delayed or missed rent payments. Usually, a poor record of repayments is likely to result in a low credit score. Also, your credit history may include information from tenancy databases such as the number of times landlords have inquired about your credit score. 

If there are too many inquiries within a short time, landlords may conclude that you have had issues renting in the past.  However, there is no rule as to when landlords check your credit score. Some might check every time they receive a tenant’s application. In some cases, landlords may even rent out their property to tenants with a poor credit history if they can submit additional documents or sufficiently explain their situation and how they are trying to address it.

 What credit score do landlords look for?

Landlords may look for issues relating to repayment rather than a specific credit score, although a low credit score probably suggests that you’ve had repayment issues. In general, if your credit score is categorised good, very good, or excellent - which corresponds to an Equifax credit score range of 622 - 1,200, landlords may not scrutinise your credit history too closely.

Can I check my credit score without a driver's license?

In Australia, your driver’s license is the preferred identification document for credit reporting agencies. This means you may not be able to confirm your identity using another document, such as a proof-of-age card. You may have genuine reasons like concerns over identity theft for not wanting to provide your driver’s license number. Unfortunately, most credit bureaus won’t allow people to check their credit score without a driver’s license. 

If you don’t have a driver’s license, there’s a good chance you haven’t applied for credit in the past and don’t have a credit score at all. In case you are concerned about identity theft, credit reporting agencies can offer you paid packages that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.