Credit. It’s a history of your ability and willingness to repay an obligation. And regardless if you’re seeking a rental property or planning on buying a new home, your credit will be reviewed. But what, exactly, do landlords and lenders look for when they review a credit report? What happens if they find a late payment? How “perfect” does a credit history have to be, and when credit is not so good, how can someone get on the path to better credit?
Rent and Credit
When you fill out a lease application, you also give the landlord or property management company, such as Ashford Realty Group, the authorization to pull a credit report, in addition to other background checks. If you rent from an individual your credit report will be reviewed for timely payments, past due accounts and other activity. Renting an apartment, in most all cases, will require a credit inquiry and a minimum credit score.
Credit accounts include credit cards, student loans and an automobile payment. Other monthly obligations such as utility bills or cell phone payments won’t appear on a credit report unless they have turned them over to collections. Credit reports will show the creditor, the balance owed; a maximum credit line and a minimum monthly payment. If you’ve never made a payment more than 30 days past the due date, the report will show zero lates. Credit reports will show any payments more than 30, 60 and 90 days late. A few 30 day late payments scattered over several years shouldn’t have an impact on having your lease application approved and can be true when buying as well.
If however there are multiple as well as recent late pays appearing, you may find getting your lease application approved a bit of a problem. Worse, large outstanding non-medical collection accounts or judgments resulting from non-payment will typically disqualify you.
When renting however, damaged credit may not necessarily keep you from renting a property. Some landlords may make arrangements to offset negative credit by asking for a larger down payment, higher rent or setting up an auto-debit from your checking account. In most cases, there’s always an avenue to rent. Just be able to make the rent every month and work on repairing credit.
Buying and Credit
With regarding to buying and financing a new home, credit scores will be a requirement on most every single loan program. A mortgage lender will pull a credit report and request a credit score from each of the three credit bureaus. This three digit number, commonly called a FICO score in deference to the company that invented the credit algorithm, will range from 300 to 850. The higher the number the better the credit. You’ll have three numbers that in most cases will be very close to one another but rarely exactly the same. Lenders throw out the highest and lowest score, using the middle one (referred to as “mid-score”).
The minimum credit score for most loans is 620, which is considered to be decent but not great credit. Some lenders will go lower to 580 but only under specific circumstances or special programs designed to establish a credit history for those without very much credit.
When financing a new home with a credit score below the minimum, there are rarely any other options other than getting credit scores above the required minimum.
Credit Score Repair
Whether you’re buying or renting, your payment patterns will be reviewed. When credit scores are calculated, they focus on five things along with how much each contributes to the final score:
- Payment History (35%) This category looks to see if there are any payments 30 days past the due dates, collection accounts or judgments.
- Available Credit (30%) This is the difference between credit limits and current balances. The ideal balances on revolving credit accounts, like credit cards or credit lines, is around 33% of the credit limit.
- Length of Time (15%) Those with longer credit histories will have higher scores compared to credit newbies.
- Types of Credit (10%) Credit accounts from finance agencies or pay day lenders will lower a score. Credit cards and installment loans will raise a score. Mortgage accounts contribute the most.
- Inquiries (10%) This reports any recent applications for credit and new credit accounts.
You’ll notice the first two categories contribute nearly two-thirds of the total score and the ones the borrower has the most control over. By concentrating on Payment History and Available Credit alone, credit scores will gradually rise.
If you’re not sure where you stand credit-wise, the three main credit bureaus, Experian, Equifax and Transunion have joined together to provide a free credit report at www.annualcreditreport.com or you can speak with a lender or property management company who can help guide you to a better credit profile. Most times, potential renters and buyers fear the worst and imagine their credit is simply too terrible to qualify for anything.
However, that’s not true. You need someone who has reviewed hundreds of credit reports who can tell you immediately what your current credit situation may be and provide a credit road map to get you to your destination. If you’re concerned about requesting your credit score or would like more information about how it will affect your loan please give Ashford Realty Group a call at 719-574-2227, or contact us here.