Recently I had been on the hunt for a new apartment for next fall as I head back to school to start a master's program. I can’t count the number of rental companies or landlords that requested for me to take an application, often times reciting that there is no fee to apply. Some places won’t even show you the unit until you have applied.
Granted you are not going apply with a shotgun strategy of filling out an application for every place you have a slight interested in, especially if there’s a $20+ application fee, you should still proceed with caution to insure that your credit score does not get dinged/demolished/lowered in the process. Every time you submit an application, the landlord has the option to run a credit check--resulting in either a soft or hard inquiry on your credit score.
Hard inquiries are valuable assets when it comes to earning miles and points from trying to open new credit card accounts to scoring the bonus. One way to look at it is that each hard inquiry is potentially worth the value of a welcome bonus if it was a matter of being denied or approved based on the number of hard inquiries on your credit report. So I place a high value on a hard inquiry to my credit score and do everything in my control to minimize them. Each hard credit check will also put a small ding on your credit score, usually around 2-5 points per credit pull.
While the impact of a single inquiry is not huge, the potential for multiple credit checks while apartment shopping can do significant damage. Since you don't have the option to submit all applications at the same time, as you would when applying for multiple credit cards, you will not have the control to have all the credit inquiries post on the same day. This strategy can be used to combine credit inquiries when the credit card companies use the same credit bureau, but not so much when you are relying on the landlord to submit the application in a timely manner.
Since there are two types of credit checks, both soft and hard inquiries or ‘pulls’, it is good to understand the difference between the two and what they mean for your credit score. Soft inquiries do not impact your credit score and are often used during background checks by employers or by credit card companies that pre-approve potential customers for cards. You don’t have to worry about soft inquiries lowering your credit score, as these occur frequently and are not looked upon negatively.
The ones that take a hit at your credit score are hard inquiries, or ‘hard pulls.’ These occur when you apply for a new credit card, loan, or rental unit. Each hard inquiry can lower your score by a few points and can linger on your credit report for 3 months or more. However, after about 3 months hard inquiries tends to drop off and no longer have a negative impact. This is why many big mile and points earners tend to apply for new credit card offers on a 91 day cycle. Too many hard inquiries will damage your credit score and lower the likelihood of being approved for a new credit card offer.
Since each hard pull can take a bit out of your credit score by about 2-5 points it is to your best interest to minimize the number of apartment rental applications you submit. While submitting a couple applications won’t ruin your credit score, if you end up submitting a handful of applications you could see your score drop by more than 20 points. This drop in your credit score, as well as the number of recent credit inquiries, is enough to be denied a new credit card or loan application.
Just like a bank or credit card company, when a landlord checks your credit they are attempting to determine your financial trustworthiness. If you can't pay your loans or credit card bills on time, why should they expect you to pay rent on time? They basically just want to make sure they are handing the keys to a tenant that can pay rent at the 1st of every month. Any late payments, unpaid debts, and bankruptcies or foreclosures will all raise a red flag and make the landlord think twice about your likelihood of being a reliable tenant.
Your credit score is not the only thing that will be considered when applying for a rental. Your references may be contacted, rental history looked up, and a proof of income--sometimes as much as 3 times the monthly rent is required.
If the landlord is insistent on checking your credit there are a few ways to try to persuade them otherwise.
1. Offer to pay a few months rent up front (be sure to ask if they accept rent payments by credit card!) 😉
2. See if they would be willing to accept a credit report that you can provide and potentially already have on file from a recent credit check.
3. Consider having a reference, such as a previous landlord or employer, vouch for your financial responsibility in a letter of recommendation.
4. Having a co-signer may help you secure a rental without having you or the co-signer’s credit checked
Do your research and be judicious about applying for rental property. Make sure you are applying for the place you truly want to live in, and not just applying to apply. Ask the landlord if they require a credit check, and if so if there is another potential method to insure you are a trustworthy tenant who will pay rent on time. Since you probably value your credit score more than the average consumer and rely on it to earn hundreds of thousands of miles and points each year make sure you protect it keep it high. After all, an extra hard inquiry on your credit score could mean losing that next amazing credit card offer.
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