Why credit scores count in renting (and how to build yours)

Getting your next home is a complex journey. You’re not only searching for the right place, you're also being underwritten to prove your ability to pay rent reliably. Surprisingly, the world of real estate and residential renting is fraught with more fraud than one might think. Property managers are constantly working to spot falsified information: from fake IDs, to stolen SSNs, or edited documents. All of this means you’re held to a higher bar when applying for a rental property. Until we find a better standard measure, credit scores are one of the most widely-utilized tools a property manager has to gain a reliable understanding of your financial health. Let’s explore why your credit score plays a pivotal role in securing your ideal home, and delve into the steps you can take to improve it.

Credit scores were introduced in the late 1980s by FICO to standardize the way lenders evaluate the risk of lending to consumers. It’s calculated based on your credit history, payment behavior, and various financial factors. The higher your score, the more likely you are to be seen as a responsible borrower. And when you’re seen as a safer investment, you’re likely to realize savings in the form of lower interest rates and more widely available forms of credit.

Rental applications are not just about providing references and signing a lease agreement. Property managers  use your credit score to assess your financial responsibility and ability to pay rent on time. Missed rental payments and evictions are as much of a headache for property managers as they are for renters. In order to lower the risk of such events, a property manager may use your credit score to indicate the likelihood that rent will be consistently paid on time. A higher credit score signals lower financial risk, setting you up for a better chance of approval.

Given the importance of your credit score in the rental process, you’re probably wondering what you can do to improve it. The good news for renters (and future home buyers) is that there are tons of ways to get on the path towards better credit, including a few shortcuts that can make a huge difference as long as you’re ready to make a plan.

First, there are a few things you can do as part of your regular routine to boost your score. These include:

• Paying all bills, including credit cards, loans, and utilities, on time
• Keeping your credit card balances below 30% of your credit limit
• Not opening too many new credit accounts in a short period

Beyond these habits, there are also services dedicated to helping people build their scores through non-traditional methods. To help highlight some of the most reliable resources, Findigs has teamed up with two partners, Self and Kikoff, that together have helped thousands of people lift their credit scores. They each offer a variety of programs including credit builder loans, on-time payment reporting, and spend accounts. 

With Kikoff, you may be able to grow your credit with small monthly payments towards an interest-free line of credit, and build payment history right away. Explore Kikoff’s plan.

The Self Credit Builder Account* is a pioneer in personal finance, specially designed to build credit and savings at the same time. Learn more about Self here.

Beyond rentals and homeownership, your credit score can have a major impact on many parts of your financial life. Here are a few examples below to illustrate the long-term benefits of improving your credit score:

Lower interest rates

A higher credit score can lead to lower interest rates on loans and credit cards, saving you money over time.

Access to better loan terms

Lenders offer more favorable terms to borrowers with excellent credit, making managing your mortgage or other loans easier.

Higher credit limits

A strong credit score can lead to higher credit limits on your credit cards, giving you greater financial flexibility.

Staying aware of your score, and building positive financial habits as soon as possible is crucial, as your credit score can play a role in so many different aspects of your life over time. Additional support from our partner services, Self and Kikoff, can provide an extra bump to get things moving in the right direction (and keep it that way)! Taking simple steps to build your credit provides immediate benefits in your financial life and will continue to pay dividends as you navigate your personal financial journey.

The information in this post may direct you to a third-party website. Findigs has no control over, and assumes no responsibility for, the content, accuracy, privacy policies, or practices of or opinions related to third-party services.

*Credit Builder Accounts & Certificates of Deposit made/held by Lead Bank, Sunrise Banks, N.A., SouthState Bank, N.A., First Century Bank, N.A., each Member FDIC. Subject to credit approval.