Navigating the rental market can be a daunting task, especially when you're faced with the obstacle of having no credit history. Whether you're a young adult just starting out on your own or someone who has simply never utilized credit, the lack of a credit score can pose significant challenges when it comes to securing housing. Renting an apartment without a credit history is indeed possible with the right approach and understanding of the process. Let’s explore some strategies and tips on how to rent an apartment with no credit successfully.
Is no credit worse than bad credit?
Renters with bad credit and renters with no credit often get put in the same group, but renters with no credit are in a much different situation than those with a low credit score. Having no credit means that your credit history is a blank slate, so you have no credit history to base a score off of. Having a low credit score means that you have made some financial mistakes along the way. While landlords perceive both as potential risks, a person with no credit may be seen as less of a risk than a person with bad credit.
The reason a landlord runs a credit score is to determine if you’ll be a trustworthy tenant. A person with a poor credit score may have a history of missed payments, maxed-out cards, and outstanding debts, making them seem less likely to pay their rent on time and in full. Those with no credit have nothing to prove their trustworthiness, but there are plenty of ways to win the trust of your potential landlord.
Tips for Renting an Apartment with No Credit
Securing an apartment without a credit history requires a proactive approach and a thorough understanding of the rental process. Here are some tips to help you navigate this situation effectively:
1. Bring references and proof of income
Securing an apartment when you're fresh out of college or don't have a credit history can be a bit of a hurdle, but not if you come prepared! Will a college professor vouch for you? Perhaps your boss or supervisor? Whatever you can bring along to prove yourself trustworthy, use it. If you have a job, bring along a pay stub. If you have money in the bank and a steady income, a bank statement might help as well.
2. Offer to pay a larger security deposit
One way to mitigate the perceived risk of renting to someone without a credit history is to offer a larger security deposit. By providing additional funds upfront, you demonstrate your commitment to fulfilling the terms of the lease and offer the landlord a greater sense of security in case of any potential issues.
3. Explain your situation to the landlord
While having good credit is ideal, having no credit is better than having bad credit. Typically, people who have no credit are young adults on their journey to financial freedom, so explain your situation to your potential landlord. With a steady job and income, your potential landlord should be less wary about renting to you.
4. Get a cosigner or guarantor
If you're unable to secure a lease on your own due to a lack of credit history, consider enlisting the help of a co-signer or guarantor. This individual, typically a family member or close friend with a strong credit history, agrees to assume responsibility for the lease if you fail to meet your obligations. Having a co-signer can reassure landlords of your reliability and increase your chances of approval.
5. Find a roommate with credit
If you lack a credit history, consider sharing your living space with someone who has a strong credit score. This individual can serve as the primary lessee, a guarantor, or a joint tenant, effectively enhancing your chances of securing your preferred apartment community.
6. Find a privately owned rental
A landlord who owns a small apartment building or a single-family house might not run a credit check, or they may be willing to overlook your lack of credit if they feel good about you. You can also look for rentals that advertise “no credit check.”
Ways to Build Credit, Fast
Living with roommates can be a fun and rewarding experience, but understandably, you may not want to live with them forever. So, let’s get you on the path to good credit fast. In a short time, you could have a stellar FICO score. Here’s how to build credit the right way:
Check your credit
Are you sure you don’t have any credit? It’s worth checking annualcreditreport.com to see exactly where you stand. (This is a completely free, government-mandated website. Beware of any site that wants you to pay for your credit report or asks you for a credit card.)
Apply for a secured credit card
A secured credit card is ideal for anyone who can’t get a regular credit card because of the “no credit” problem. A secured credit card works like this: You give the bank a certain amount of cash – let’s say $500. In turn, the bank gives you a credit card, and you can charge up to $500. Be sure to look at different options. Some banks might charge an application fee or an annual fee. Avoid those because they’ll eat up the $500 very quickly. Make sure the issuer of the secured credit card reports to all three major credit bureaus (TransUnion, Equifax, and Experian). Don’t keep this card any longer than you have to, and be sure to pay off the card every month (don’t keep a balance).
Aim for a high credit score
While it might seem like an uphill battle to achieve a high credit score when you have no credit history, it's a goal worth pursuing. If your credit really is non-existent, you want to aim for 750-850. This is “excellent.” Most apartment communities want a credit score of 600 or above.
Consider a credit-building loan
If you don’t want a secured credit card, get a credit-builder loan. These loans are specifically designed for people without credit. Find one with a very low, manageable monthly payment and a shorter term – 24 months or less. Apply for the loan. Usually, the money is deposited into a savings account and you can’t access it until you’ve paid off the loan. If you pay on time every month, you’ll walk away with cash and credit!
Get a car loan
While it might seem counterintuitive, getting a car loan can help you establish a credit history, which can be beneficial when renting an apartment without a credit history. Sure, you’ll most likely need a cosigner, but this is a great way to build credit as long as you pay on time every month.
Make payments toward your student loans
Did you take out a student loan or two to help pay for college? That debt can come in handy. Start making payments on these and watch your credit score grow while your student loan debt shrinks. Make sure you pay your loans on time. If you are late or default on your loans, it will have a negative impact on your credit score.
Start Monitoring Your Credit
There are some things to watch out for while building your credit. You want to keep your credit card balances as low as possible, if not completely paid off. If you have an open line of credit, you’ll improve your utilization ratio, which is basically how much credit you have versus how much you use it. If, for example, you have a $500 credit limit on a card and you owe $250, your credit ratio is 50 percent. A low credit ratio shows you use less of your available credit, which translates to you being responsible with credit and able to manage it. Keep your credit ratio around six percent, or, in this case, less than $30.
Keep in mind the utilization ratio only applies to credit cards. Car loans and other installment loans use a different rate called the debt-to-income ratio. To find your debt-to-income ratio (or DTI), divide your debt (credit cards, car loan, other loans) by your gross monthly income. So, if you make $2,000 per month and you owe $1,000 every month, your DTI is 50 percent. This number doesn’t impact your credit score (your income isn’t a factor in your score), but it’s good to know if you ever want to apply for a loan —the lower this ratio is, the better.
To wrap up: You want to establish credit. Do that by opening a credit card (but use it very sparingly) or start paying off a loan. Maybe a mix of both. But don’t open too many credit cards or get a loan with an unmanageable monthly payment, or you run the risk of being late and ruining your growing credit score. You want to find a nice, comfortable balance between income and debt.
Frequently Asked Questions About Renting with No Credit
Does my age play a role in my credit score?
No, your age does not affect your credit score, but the age of your credit line impacts your score. While nothing speeds up time, rest assured knowing that by opening your first line of credit, you’re starting your credit journey. As long as you start off making payments on time and in full, you’ll start building credit in no time. You can also be added as an authorized user to a trusted individual’s credit card to jump start your credit history.
Is no credit considered worse than bad credit?
No, having no credit isn’t necessarily as bad as having a low credit score. Having no credit just means that you aren’t able to prove your financial reliability, while having bad credit means you have a history of making financial mistakes. As long as you start building credit the right way and make a few concessions, like paying a higher security deposit, you should be able to rent while building your credit.
What credit score are apartments looking for?
Credit score requirements are up to the property management company or landlord to decide. Generally, the minimum credit score is around 600 to 620. Any credit score above 670 is considered great, and you shouldn’t have any issues with having your credit approved.
What are my alternatives if I can’t get an apartment?
Consider renting a privately owned rental property. Look into renting out a room, renting out a condo owned by an individual, or renting through a small, privately owned rental company. A property owned by a corporation is less likely to be willing to give you a chance than an individual owner or manager.
Renting an apartment without a credit history may present its challenges, but it's far from impossible. By implementing the strategies outlined in this article, you can navigate the rental process with confidence and increase your chances of securing the apartment you desire. From building a strong rental resume to providing alternative forms of financial verification, there are various ways to demonstrate your reliability as a tenant, even without a traditional credit score.
