Renting an Apartment: Overview
Finding the most appropriate apartment to rent and a suitable tenant is a time-consuming exercise.With an increasing number of people changing cities for work, the rental sector has been busy catering to every pocket size. Usually, students, fresh graduates in their very first job, professionals, or families moving for better opportunities look for a rental house. Hence, it is even more pertinent for both tenants and landlords to understand some of the finer points involved to ensure hassle-free tenancy.
Why Should Landlords Run a Check on the Tenant’s Credit Score?
Property managers usually perform credit checks on potential tenants to verify the candidate’s financial history. It acts as an assurance that they can meet the financial commitments associated with renting an apartment. Landlords, too, run similar checks before approving rent applications and finalising a tenant. Applicants who have previously fulfilled their monetary obligations and maintain a good credit score will, in all likelihood, pay their rent on time posing fewer risks to the landlord.
On the other hand, negative credit or low credit scores indicate repayment irregulaties and individuals in this range may find it difficult to rent apartments since it suggests an inability to honour timely rent payments in full.
Understanding Your Credit Score
A credit score or CIBIL score is a numeric rating that reflects credit habits. Credit scores range from 300 to 900, wherein the former number denotes the lowest score while 900 is the highest credit score. Higher scores indicate creditworthiness making it easier to avail of credit lines and mortgages.
Credit scores are generated by credit bureaus in India namely TransUnion CIBIL, Equifax, Experian and CRIF Highmark. These agencies collect and collate credit information received from different banks and lending institutions. When a credit report is requested, they pull up reports of the individual in question assigning him/her a three-digit credit score, also known as the CIBIL score.
How is Credit Score Calculated?
Credit scores are typically calculated based on multiple factors as follows:
- Payment History (35%) - Your payment history forms a major chunk of credit score calculation. If you have made bill payments consistently over time, you can easily maintain a favourable rating.
- Credit Utilisation (30%) – This refers to the credit limit given to you. If you restrict it to 30% utilisation, you can retain a good score; whereas overstepping the threshold may result in a significant dip.
- Length of Credit History (15%) – Older credit accounts that show timely payments over an extended duration can hike your credit score.
- New Credit (10%) – Numerous lines of credit and loans undertaken within a shorter time span may harm your credit score. Hence, it is best to use credit cards judiciously and avail of debt only when necessary.
- Credit Mix (10%) – A balanced combination of secured and unsecured credit denotes wise money management, which can effectively raise credit ratings.
What is the Ideal Credit Score for Renting an Apartment?
Credit score requirements for renting an apartment vary widely depending on the landlord or property management company. However, there are certain aspects one should bear in mind when looking for rental flats. Generally, a credit score of 650 or above is considered a good score for availing rent; while a lower score may make it harder to receive approvals for rental units and/or localities of choice.
However, it must be noted that credit score is not the only factor landlords focus on when reviewing probable tenants. They will also assess several other considerations such as your income, rental history and employment status. Some landlords may accept tenants with relatively lower credit scores if they offer a co-signer or a bigger security deposit.
Landlords normally look for non-payments, late payments, employment stability, history of evictions, disputes or damage to safeguard against rental risks. In certain instances, they may also ask for references and conduct a background check.
Can You Rent a Flat with Low Credit Scores?
In most cases, no-credit-check apartments are the only option left for individuals with low credit scores. Here are some useful tips that may fetch you better rent options:
1. Discuss with the Landlord
Be transparent about your less-than-ideal credit score. Have a frank discussion with the landlord or property manager on how you are taking steps to improve it. If this is a temporary phase like early employment years or repaying student loans, you could appraise them accordingly to allay their concerns.
2. Submit Proof of Financials
Most property management companies see to it that tenants have a monthly gross salary which exceeds three times the rent cost. They may ask for financial proof like salary slips, bank statements, tax papers, etc. to make sure you can pay rent on time. Remember to exercise caution when submitting details so as not to compromise your personal information.
3. Get a Co-Signer
If you can find a parent, relative or friend with good credit to stand as guarantor and co-sign your rental agreement, you may have a better shot at gaining rent approvals. This especially holds true for young professionals who have no rental or credit history. Having a co-signer means that the person is held liable in case of missed or delayed payments, damage or other relevant events.
4. Become a Co-Tenant
You may consider co-tenancy during a period of bad credit. Landlords are still likely to check your credit score but they may not place much importance on it as your co-tenant would be the legal leaseholder.
4. Offer a Higher Security Deposit
Paying more money upfront assures landlords that you can pay the rental bills on time despite a low credit score. So, discuss this possibility in line with your budgetary constraints.
Can Tenants Voluntarily Provide Their Credit Reports?
Tenants who apply for rent with multiple landlords may prefer furnishing a CIBIL/credit report on their own to avoid paying the fees every time a landlord seeks a credit check. This does not imply that landlords will always accept these credit reports. They may wish to run a credit check yet again on their own for an updated and more complete report.
Does Late Rent Affect Credit Scores?
By and large, late rent payments do not affect credit scores since rent payment is not reported to credit agencies. However, if your property manager or landlord is enrolled with a rent reporting service, your payment history may find its way into your credit report.
Individuals looking for apartments on rent must ensure that they pick suitable flats whilst keeping in mind the landlord’s requirements. Further, they should appraise their credit scores through credible websites and if found wanting, take remedial measures to boost them. Maintaining the ideal credit score range will not only aid in snapping up the best rental deals but it will also prove beneficial in availing a loan or other forms of credit.
