7 Tips for Renting with Less Than Stellar Credit

7 ways to rent with crummy credit

Fallen on tough times? These tips can help you put a roof over your head again.

Has your credit slipped during the Great Recession? If so, you’re far from alone.

In July 2010, credit-rating company FICO announced that at least one in four Americans now has a credit score below 600 out of a possible 850 — a figure that is up slightly since 2008.

More than one-third of us have scores below about 650 — which is the historic dividing line between what’s considered “prime” and “subprime.”

Those aren’t just abstract numbers, especially for people who are looking to rent an apartment or house. Your credit score, along with gross income and your employment history, are the main things a landlord will check when deciding whether to rent to you.

Quite simply, “Landlords are hesitant to rent to people who have something (negative) on their credit report,” says Virginia Sullivan, head of consumer education at Bills.com.

How do you know if your credit score is bad? Here’s a quick primer on the numbers: Your FICO score can range from 300 (the worst) to 850 (sterling). Don’t expect to see 850, however, even with perfect credit; 825 is about the highest anyone ever seems to get. Don’t have 825? Fear not: A score between 775 to 825 will net you about the same benefits, experts say.

But for those not hitting the high 700s, there’s room for improvement.

What do you do if you’ve missed some credit-card payments, lost your home to foreclosure or otherwise seen your credit battered?

Fear not, the experts say. It may require a little more work, but you can still get a roof over your head without necessarily spending a lot more money. Here’s how:

1. Avoid the credit check entirely. Not every landlord requires a credit check. Smaller, mom-and-pop landlords who may only have a few units don’t always bother with credit checks — as opposed to larger management companies that require credit checks. If you do find a smaller landlord, you’ve avoided the problem. These landlords may also be more sympathetic to your situation, especially if it was caused by the recent economic upheaval, Sullivan says.

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Where do you find these landlords? Try Craigslist, local bulletin boards, and the classified ads of your local paper.

There are other ways to find landlords who don’t require the checks. Ask your local tenants’ rights group if it has a list of these landlords around your city, says Mike Piepsny, executive director of the Cleveland Tenants Organization, a tenant-advocacy group. Social-service organizations also may keep these lists to help people who are trying to get back on their feet, Piepsny says.

One last way to avoid the credit check: Jump in with roommates who are already established in a house or apartment and whose credit has been vetted, says Ed Sacks, former “Apartment Watch” columnist for the Chicago Sun-Times and a mediator who helps navigate landlord-tenant disputes.

2. Know the score. “Know what your credit score is; you’d be surprised at how often there are errors on your credit report,” Sullivan says. Your true credit may be better than the number says: A 2004 study from the U.S. Public Interest Research Group found that a quarter of credit reports had mistakes that could trigger a denial of credit. A more recent study from the Policy & Economic Research Council, however, says that less than 1% of disputed credit scores led to an increase of at least 25 points.

Be sure to check your score before landlords start asking for it, and make sure corrections have been made, she says. The government lets you access your credit report once a year for free here.

3. Give your best excuse. If you’ve got a real smudge on your credit report, the law allows you to submit a 100-word explanation to be included in your credit-bureau file, Sullivan says; when landlords, for instance, pull your full credit file, they can also see the explanation. Not only does the note give some explanation for why your credit has a ding, but putting a note in your file “also shows you care,” Sullivan says.

Note: Make sure you submit the note to all three credit-reporting agencies: Equifax, Experian and TransUnion.

4. Marshal your paperwork. Remember that when people are looking at your credit, the credit score is only part of the picture, Sullivan says. The other part is your “credit profile” — all the other stuff that paints a picture of you and helps a landlord decide whether you’re a decent risk. Have you been in your job awhile? Do you work in a secure industry? Have you moved often?

You want to make this credit profile look A-plus. How? “What you can do is try to put together a preponderance of evidence showing that you’re a good credit risk, despite your lousy credit,” says Geoff Williams, co-author of “Living Well with Bad Credit: Buy a House, Start a Business, and Even Take a Vacation—No Matter How Low Your Credit Score.”

“What you need to do is gather your paperwork and treat this like you would if you were a lawyer preparing a case,” Williams says. You’ll then present this to your would-be landlord, along with your application. “Bring in your bank statements — four months is generally what they want to see — and your pay stubs from the last few months showing that you have a steady income.”

If you really want to be on the ball, Williams says, provide references—and we’re not talking about a note from mom and dad. “Give your landlord references from people who are going to carry some weight with an apartment complex or a homeowner looking to rent to someone. Your employer, your last landlord — if you have one and you left on good terms — would make good character references.

“Finally,” Williams says, “if your bad credit is obvious — you declared bankruptcy four months ago, for instance, and lost your house in a foreclosure — then include a letter from yourself, explaining your situation. Again, make that case that you’ve left rock bottom and you’re heading upward now.”

5. Money solves everything. If you’ve got bad credit, you might not have much dough. But if your credit problems are behind you, you could solve your housing problems by waving a little cash around, housing columnist Sacks says:

• Pay in advance.“Offer a larger security deposit — it could be a larger security deposit, plus an advance of first month and last month’s rent,” he says. “So it wouldn’t be the full amount of the lease, but it would be a substantial amount of guarantee.” The idea: Put the landlord’s mind at ease with greenbacks.
• Put it in escrow.“Establish some sort of escrow account in which the amount of cash in advance that would satisfy a landlord would be placed, and that money would be either be released at the end of the lease back to the renter or, if there was a default on behalf of the renter, the amount of the money owed” would be released to the landlord, Sacks says.
• Make it automatic. Instead of paying the rent by check each month, tell the landlord you’d be willing to have the rent deducted each month from your checking account automatically, or, if there’s no service charge to you, from a credit card. Knowing that the rent will always be paid on time will ease a landlord’s mind.

6. Consider a co-signer. Sometimes called a “guarantor” or a “security,” a co-signer is someone with good credit who doesn’t live with you but who will be responsible to pay the rent if you default. Some guarantors actually sign the lease, others don’t. Landlords in high-rent places like Manhattan require guarantors much of the time, but you could suggest one if it would put a landlord’s fears to rest, Sacks says.

7. Negotiate a short-term lease. Earn trust from your landlord by suggesting a month-to-month lease, Sacks says. A shorter lease may appeal to a landlord because it exposes the landlord to less risk, he says — and the landlord can often charge more for a month-to-month arrangement.

Sacks has one note of warning about these financial options, however: “Ask the landlord to come up with options first,” before suggesting these ideas, he says. “That way, the applicant is doing three things: He is not negotiating against himself and offering more than he needs to. Number two, (the applicant has) proactively tried to make the best of a bad situation, and number three, there may be other things that property managers may do and offer” that the applicant hasn’t thought of, he says.

Try these tips, and you likely won’t find yourself without a roof over your head — no matter how matter how leaky your credit score is.

By Christopher Solomon of MSN Real Estate