Does Applying for an Apartment Hurt Your Credit?

More than 35% of U.S. households rent where they live. That’s a lot of Americans and, potentially, a lot of moving: Roughly 25% of renters change addresses every 12 months or less.

With relocation come the inevitable rental applications, and, potentially, dings to the renter’s credit score. We stress potentially because, when landlords request tenant screening reports, they do not require the sort of credit checks that damage FICO scores.

Nonetheless, “Renter credit anxiety hits my desk weekly,” says New Smyrna Beach, FL-based Ryan Winslow, a broker at Winslow Homes and a loan officer for Novus Home Mortgage.

Let’s work on alleviating some of that renter angst by helping you prepare for the worst.

Types of Apartment Credit Checks

Credit inquiries fall into two categories: Soft and hard. Whether your credit score takes a hit relies on which one is chosen. If you’re concerned, ask which type of inquiry — or “pull” — the landlord uses.

The vast majority of apartment credit checks fall into the soft category, although there can be exceptions. Either way, owning and operating property can be expensive; accordingly, landlords need to know their tenants are financially reliable.

“Landlords want to get paid,” says Jeff Lichtenstein, CEO and broker at Echo Fine Properties, based in Jupiter, FL. “Simply put, they don’t want the headaches of ‘The check is in the mail.”

Soft Inquiries

Soft pulls, which result in zero impact to credit scores, typically occur as part of a background check, or when the applicant is not actively seeking new credit.

Job applications requiring a background check usually involve a soft credit inquiry. Performing a personal check of your credit score and history is another soft-pull situation, as is seeking preapproval for some sort of credit, such as shopping for a personal loan or a mortgage.

By allowing the recipient to review your credit score and report, a soft pull provides a clue into your money management skills.

Hard Inquiries

Generally, hard inquiries are triggered when you officially apply for credit: credit cards, personal or vehicle loans, mortgages and, on rare occasions, rental dwelling space.

The federal Fair Credit Reporting Act requires credit bureaus to alert you when a creditor or other business performs a hard inquiry. Because hard inquiries cannot happen without your permission, a landlord must ask you to sign a credit screening document before they can proceed.

And some, most assuredly, will. “A smart landlord is going to go deeper,” Lichtenstein says. “When I’m representing a landlord, I insist on a full credit report unless we know who the person is.”

Because credit bureaus regard application for additional debt as potential threats to paying back existing debts, hard pulls ding your score by a small handful of points (usually no more than five).

The request sticks to your credit report for up to two years, but if you continue the proper management of your debts, the harm will fade after a few months.

Why Do Landlords Perform Credit Checks?

Rental payments that are punctual and in-full make the property management world go ’round. Sorting out who’s likely to keep the globe spinning from those who might slam on the brakes is the purpose of credit checks by landlords and property managers.

Nobody wants to talk about it in the glow of moving into that dreamy new apartment, but failing to identify applicants who may be at higher risk of missed payments boosts the probability of evictions, which are time-consuming, costly, and unpleasant for all parties.

That’s why landlords and property managers usually request tenant screening reports, which include a spectrum of information, including credit checks. Before you go apartment hunting, request a copy (for a fee) from any of the several tenant screening companies, such as RentBureau, RentGrow, Zillow and SmartMove.

“In a credit report, landlords are often looking less at perfection and more at patterns,” says Scott Oosterhouse, an authority in business administration from Detroit who founded EveryDollarGrows.com, a personal finance website.

“[Landlords] may pay attention to missed payments, collections, large debt burdens, or other signs of financial stress. What they are usually trying to answer is simple: Does this applicant look likely to pay rent consistently?”

Echoing Oosterhouse: When landlords perform credit checks, they’re seeking evidence that your financial life is in order. Their confidence will rise based on satisfactory news in these areas:

• Payment history: Your payments are timely and in full.
• Debt load: You are not overburdened by existing debt.
• Debt-to-income ratio: You have sufficient income to afford your debt payments, rent, and other expenses.
• Length of credit history: You demonstrate long-term stability.
• Past delinquencies: You’re rarely or never late with payments.

Landlords breathe easily if your FICO score is 670 or above, labeled as “good” by the credit-reporting agencies.

If your score is not great (which you’ll know because you wisely requested credit reports and scores from Experian, Equifax, and TransUnion ahead of time), you may yet be OK. Credit scores and histories are just part of the background search tapestry. You also can ask upfront whether the landlord has a strict credit score policy.

Sometimes, broker Lichtenstein says, “I put my renters with the landlord directly. If the renter shows they are at a stable job and personally meet the landlord, it often helps.”

Even so, he adds, “Landlords are going to have their eyes wide open.”

One emerging line of lease-worthiness is via rent-reporting. Fewer than a third of landlords and property managers utilize such services (Esusu, Bilt, or TurboTenant among them), but if you’re moving from a complex that tracked your rent payments — and you were punctual — your report could help your case.

“If a person has had some late credit card payments but has always paid rent in full and on time, that is worth highlighting,” Oosterhouse says. “A landlord reference is not unusual at all, and in that situation, it can be especially helpful because it speaks directly to the issue the next landlord cares about most.”

Winslow agrees: “Bring a 12-month positive rent ledger…Rent history weighs heavier than card history with most private landlords.”

If the balance of the evidence indicates you are an upstanding citizen with some unfortunate knocks on your credit, you may be able to swing a lease with additional backup: a larger security deposit, a cosigner or guarantor, or proof of strong income and employment stability.

Will Applying to Multiple Apartments Impact My Credit Score?

Whether your credit score is bruised by multiple applications for multiple apartments resulting in multiple credit inquiries hinges significantly on which sort of pull prospective landlords request.

If they’re all soft, even if they number in the dozens (because you’re maximizing your options in a competitive market), your score should remain undented.

Wait. Suppose there are the odd few hard pulls mixed in with all the softies. Interestingly, most scoring models, FICO among them, cluster similar inquiries requested in a narrow window (14 to 45 days, generally) as a single inquiry. Your score will drop, but only slightly.

How Credit Score Factors into Rental Approval

To reiterate, your credit score and history are just one slice of the background check pie landlords critique before ruling on your lease-ability.

Other factors landlords consider regarding an applicant’s approvability include:

• Income
• Employment history
• Rental history
• Eviction history
• References
• Public records (tax liens, civil judgments, bankruptcies, legal history)

Undoubtedly, clearing the credit score hurdle is important, especially in a competitive rental market. However, it’s still possible to rent an apartment with bad credit if the damage is the result of explainable setbacks (you were laid off, or out of work because of illness or injury), especially if you can demonstrate you’re back on track.

As noted above, however, be ready with a backup plan: the offer of a larger security deposit or a cosigner/guarantor.

Many landlords or property managers use a third party for their credit inquiries and background checks. Ask before applying whether you can expect a hard credit inquiry.

Avoid hard pulls when you can, but especially when your credit score is hovering right at 670, or you’ve lately applied for (or are planning in the coming six months to apply for) any variety of loan or credit card.

The Bottom Line

Whether it’s your first place or you’re moving up, imagining yourself in a new apartment or rental house can be a dreamy experience. Avoid the nightmare of rejection and maximize your odds of a happy ending by advance preparation.

Request your credit reports from the Big Three credit reporting agencies (Experian, Equifax, TransUnion) and review them for errors or other discrepancies. File disputes with the credit bureaus and the creditor that provided the incorrect information.

Claim your free copy of your tenant screening report and give it the same scrutiny.

“The best approach,” Oosterhouse says, “is to be prepared, ask questions early, and make sure the stronger parts of the application are visible. A credit score matters, but it is not always the whole story.”

To avoid scrambling under pressure, line up your contingency plans before you begin submitting lease applications.

When possible, avoid circumstances that will result in a hard inquiry, such as applications for credit cards, or auto or personal loans.

Finally, always, always, always ask for the landlord’s screening criteria before you apply for a lease.