Why landlords and renters insurance companies pull your credit report — and how it affects you.
If you’re looking to rent an apartment or a house, the search for the perfect property can be stressful, but your work doesn’t end there: once you find the perfect rental, you have to apply and make it through the landlord’s tenant screening process.
Whether you’re applying through a large rental management company, a small group of property managers, or a private landlord, you’ll likely have to fill out an application that includes your Social Security number and permission to run a credit check as part of their tenant screening process. And even after you have an apartment, you’ll have to get another credit check in order to buy renters insurance.
What is a credit check, and why do renters need them? Read on to learn more about:
Once you have signed a lease for a new apartment or house, you have one more task before you move in and make it home, and that’s to buy renters insurance. Many landlords require that you buy a certain amount of renters insurance, but even if yours doesn’t, you should buy a policy in order to protect your liability and your personal property.
When shopping around for renters insurance, your rates are influenced by several factors, including your credit. But how much does your credit affect your renters insurance premium? That varies from company to company, because each insurer has its own proprietary algorithm to decide how much to charge you for insurance based on how likely they think you are to file a claim.
Studies show that people with lower credit scores are more likely to file for claims than people with higher credit scores, so that’s one reason why insurance companies want to look at your credit history. The specific things they are looking at varies, but in general, they want to see your payment history, your credit history, whether you have any debts in collections, and information about your credit accounts and applications. Different insurance companies give each piece of information on your credit report different weight in determining your premiums, which is another reason it’s a good idea to get multiples quotes.
There are two kinds of credit checks: hard inquiries, which show up on your credit report and may affect your credit score, and soft inquiries, which don’t. Examples of hard inquiries, also called hard pulls, include when you apply for a credit card, a mortgage, or a personal loan. Soft inquiries, also called soft pulls, include when you check your own credit report or when you get “pre-approved” or “pre-qualified” offers for credit cards, loans, or insurance policies.
When you apply for renters insurance, or any kind of insurance policy, the insurance company conducts a soft inquiry, or soft pull, of your credit report. The soft pull doesn’t show up on your credit history, and doesn’t affect your credit score.
When a landlord or insurance company conducts a credit check, also called a credit history, on a prospective tenant as part of his potential tenant screening process, he is pulling your credit report to look at your financial history and try to assess whether you’re a risk.
Landlords can legally check your credit when you apply to live in one of their properties, but first they need your permission before they can begin their tenant screening process. Generally this means filling out an application for the apartment, which will include a page giving permission for a credit check.
There are several ways that a landlord or property management company can do a credit check on you, including using one of several tenant screening services. It’s hard to know what exact information he will be seeing or looking for, but a credit check includes:
Credit scores (usually from multiple credit bureaus, including Equifax and TransUnion)
Loans (both current and paid-off)
Credit card history (including open and closed cards)
Payment history (including late payments)
Some landlords use the term “credit check” to also include more inquiries, including a background check, looking at your criminal history, pulling your employment history, and looking at your debt-to-income ratio.
When you apply for a rental and the landlord conducts a credit check, it can be either a hard pull or a soft pull. It depends on how the landlord runs the check and how much information they access.
Each landlord and property management company is different, and it’s impossible to say what they each specifically are looking for in a prospective tenant. But when you think about the landlord’s job — to get a tenant that is going to pay rent on time and adhere to the terms of the lease — you can start to see what they may be looking for on your credit report. Essentially, they want to see some proof that you pay your bills and keep up with contracts you’ve signed. So they want to see that you pay your bills and that you pay them on time.
So, if you’ve had a car repossessed or have any accounts in collections, your potential landlord may be wary of leasing to you, because according to the evidence, you can’t do the two things he needs most from you: honoring your lease and paying your rent on time.
If you have a low credit score, it might be worth writing a letter or talking to your potential new landlord first, or even sharing a copy of your credit report that you’ve pulled. You can try to explain what happened and assure him that you’ll make rent payments on time. You could even offer to pay an extra security deposit. This strategy will likely work better with private landlords than larger rental companies, but it’s worth trying.
Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.