Renters Need Good Credit Scores, Too

Your credit score may not be good enough to allow you to qualify for a home at a reasonable interest rate, but can a less-than-stellar credit score also keep you from finding a good place to rent?

“Credit scores aren’t just about mortgages,” says Rod Griffin, Director of Public Education at the credit bureau Experian. Griffin notes that rental companies can – and do – look at your credit score and credit reports to check your creditworthiness.

Property owners have to assess the risk you represent of not paying your rent, and, as Millennial Money Expert Stefanie O’Connell puts it, a credit score is “one of the only ways that we really have to distill a person’s reliability down to a single number.”

A recent RentCafé study shows just how critical your credit score can be, especially in competitive rental markets. The study found an approved rental agreement had an average score of 650 using the VantageScore system (ranging from 300-850), while rejected applications had an average score of 538.

Want to get into a higher-end building? Nationally, you would need an average credit score of 683 or above to qualify. On the other end of the scale, the least desirable buildings required an average credit score of 624.

Higher credit scores do not guarantee your approval, but they greatly increase the chances. RentCafé reported that a credit score of 700 or above correlates to a 97%-98% chance of approval for an apartment lease. Approval percentages drop to 87% for the 600-650 range, 67% for the 500-600 range, and 48% for credit scores below 500.

Competitive markets with shortages lead to higher rent prices and pickier landlords that can result in higher credit score requirements for approval. Boston led the 2017 study results with the highest average approval credit score of 737 and the third most expensive average monthly rent at $3,232. San Francisco came in second in both categories with an average approval score of 724 and an average rent of $3,440.

However, high credit score requirements do not always correlate to high rent. Minneapolis tied with Seattle for the third highest approval credit score at 711, but the Minnesota city showed an average rent of $1,471 – relatively modest for a large metropolitan area. Conversely, New York City, the most expensive US rental market, had an average approval score of 654, very near the national average.

Oakland, the fifth-place city in approval scores with a 707 average, and Seattle both have experienced huge increases in rental prices. Given five-year rent increases of over 50%, it’s not surprising to see high credit scores for approval in those cities.

If you live in Memphis or Las Vegas, you may have an easier time. The average accepted credit scores there are 592 and 590, respectively. Other major cities such as New Orleans, San Antonio, Milwaukee, Detroit, and Oklahoma City also feature average approval scores below 625.

By necessity, high rent requirements tend to drive average credit scores higher within a city – if you can’t afford to buy a home and have trouble renting, it’s pretty hard to stay there. LendEdu’s analysis of average credit score rankings for large cities showed San Francisco with an average credit score of 732, Seattle at 722, and Minneapolis at 710 – not far from the average rental acceptance credit score.

What’s the bottom line of the RentCafé survey? Assuming that, in O’Connell’s words, “you don’t want to live in Mom and Dad’s basement forever,” make sure that you know your credit score before searching your rental options. If you haven’t handled debt before, you may need to build your credit score first with a starter credit card. By making smaller charges on that card and paying off the bills on time and in full, you can quickly build your credit score and show responsible behavior.