When you start looking for a rental home, and find the one you want, agree to sign a lease. This lease, for all intents and purposes, is a legal document obligating both you and your landlord to certain agreements. By allowing you to become a tenant, the landlord is making an investment in you. Therefore, they want to ensure that you will uphold your end of the bargain. That might involve you giving your consent to a credit check. Here’s why it’s something that any prospective tenant might have to undergo this examination.
What’s credit?
Credit is a measurement that reflects your financial stability and security. Different financial lenders will compile credit histories of most people, and then assign a credit rating to that person based on their credit health related to other people. Some of the financial measurements included in a credit history might include:
- Your credit card accounts along with relevant debt
- Loans, such as a mortgages or car payments
- The length of time you have carried substantial debt
These factors can give banks and other parties a good idea of the risk they take by loaning you money. However, they’re important to many other businesses, including landlords and renters insurers also.
Why do landlords want to check it?
By renting a home, you agree to pay the landlord rent at regular intervals. You can think of the property as one that is loaned to you. The rent is the payment you agree to give the landlord to pay off the loan. Therefore, the landlord has a financial interest in you, and this might merit a credit check.
Credit health helps a lender know that you will pay your bills on time. Likewise, it can show a landlord that you will pay your rent regularly. Therefore, since the landlord will want to have their rent paid on time, they might have a right to run a credit check.
The Results of Bad Credit
There are ramifications that might result from having a low credit rating on your renters application:
- If your landlord finds out that you have a bad credit history, then they might be able to deny your application to rent. A low credit rating isn’t a sure-fire way to get your application to rent denied. Lots of factors can influence that. However, if you have good credit, then it is just one more strike in your favor.
- Sometimes, to remedy the situation, you might be asked to have someone co-sign as a guarantor on your lease. Therefore, if you cannot pay, then the guarantor might have to do so.
- When you apply for renters insurance, you might have to pay a higher premium. Like landlords, insurance companies want to know that you will pay your premium on time. Since credit might indicate that you could default on payments, the insurer may have to charge you more.
- Additionally, since credit shows a degree of financial stability on your party, a low rating therefore might show that you have a higher likelihood of filing a claim on your policy. It might show that you can’t afford to cover damage costs on your own. This might equal a higher chance of your insurer having to pay. They therefore might have to charge you more.
Still, there are ways that you can improve your credit, and therefore increase your chances of getting favorable terms on your rental agreement. It is always a good idea to make all of your bill payments on time, every time, and avoid racking up high amounts of debt. Therefore, you can continue to remain financially secure well into the future.