What Do Landlords Look for on a Credit Report?

When applying for a rental property, a prospective tenant’s credit report plays a substantial role in a landlord’s decision-making process. Landlords utilize credit checks to evaluate an applicant’s financial responsibility. This assessment helps them determine the likelihood of a tenant consistently making on-time rent payments.

Specific Credit Aspects Landlords Examine

Landlords scrutinize various components of a credit report to gauge a prospective tenant’s financial health. A credit score, a three-digit number, offers a snapshot of an individual’s creditworthiness. While there isn’t a universally mandated minimum score, many landlords prefer a FICO score of 670 or higher, indicating good credit. Some may accept scores as low as 600-650, depending on the property, rent amount, and local market. A lower score might prompt a landlord to examine other financial aspects more closely.

Payment history is another significant factor, highlighting a tenant’s consistency in meeting financial obligations. Landlords look for a record of on-time payments for loans, credit cards, and previous rent. Late payments or accounts sent to collections can signal financial instability and indicate potential future issues with rent payments. Timely payments are a strong indicator of reliability.

The debt-to-income ratio (DTI) compares an individual’s total monthly debt payments to their gross monthly income. Landlords consider DTI to ensure the tenant can comfortably afford the rent. While not all landlords explicitly request a DTI, many use it to assess if an applicant is living within their means, often preferring a ratio below 35%. Some may accept a DTI up to 45% or 50%.

Public records on a credit report, such as bankruptcies, foreclosures, judgments, and tax liens, provide insight into significant financial distress. These entries can negatively impact a rental application, as they indicate past financial difficulties. Bankruptcies can remain on a credit report for up to 10 years, while other negative information may stay for up to seven years.

Eviction history, although not always directly on a credit report, is a major concern for landlords and can be revealed through background checks. Evictions are legal proceedings recorded in court records. A past eviction is a significant red flag, indicating a tenant’s failure to adhere to lease terms or make timely payments.

Credit utilization (the amount of credit used compared to total available credit) and the average age of accounts also factor into a landlord’s assessment. High credit card balances or a very short credit history might be viewed cautiously. A longer history of responsibly managed accounts suggests greater financial stability.

The Landlord’s Credit Review Process

Landlords or property managers rely on specialized tenant screening services to conduct credit checks. These services provide access to credit reports and other background information, allowing landlords to efficiently vet potential tenants and assess risk.

As part of the rental application process, prospective tenants provide consent for a credit check. This authorization is required under the Fair Credit Reporting Act (FCRA) before a landlord can access financial data. The application includes personal details like a full legal name, Social Security Number, and previous rental history.

Most rental application credit checks are “soft inquiries,” meaning they do not negatively impact the applicant’s credit score. Some landlords might opt for a “hard inquiry,” which can temporarily lower a credit score. Applicants can inquire about the type of inquiry a landlord intends to use.

Landlords review the detailed report for specific patterns and indicators, not just the credit score. They seek a comprehensive picture of financial reliability, including multiple late payments, high debt levels, prior evictions. The goal is to determine if an applicant can consistently fulfill their rent obligations.

Strengthening Your Credit for Renting

Prospective renters can take proactive steps to improve their credit standing before applying for a lease. Obtaining free credit reports from the major credit bureaus—Experian, TransUnion, and Equifax—allows individuals to review their financial information for accuracy and identify areas needing improvement. Federal law allows consumers to dispute inaccuracies found on their reports.

Disputing errors involves contacting the credit reporting company in writing, explaining the issue, and providing supporting documentation. It is also advisable to dispute the information directly with the company that furnished the incorrect data. Resolving these inaccuracies can positively impact a credit score and overall report.

Consistently paying all bills on time is perhaps the most impactful action, as payment history accounts for a significant portion of a credit score. This includes not only credit cards and loans but also utilities and other recurring expenses. Setting up automatic payments can help ensure timely remittances.

Reducing existing debt, particularly high credit card balances, can improve credit utilization and the debt-to-income ratio. Aiming to keep credit utilization below 30% of available credit is a common recommendation. Paying down higher-interest debts first can free up funds and improve financial flexibility.

For those with limited credit history, establishing credit can involve opening a secured credit card or becoming an authorized user on another person’s account. These methods can help build a positive payment history when managed responsibly. Additionally, some services report on-time rent payments to credit bureaus, which can help strengthen a credit profile, especially if the landlord does not already do so.