For many landlords, credit reports are a litmus test that shows how responsible you have been at managing money. Like it or not, your financial history is a powerful indicator of whether you will be a reliable tenant who pays rent on time and is not likely to cause problems. A landlord can legitimately turn you down for a bad credit report.
Fortunately, there are some restraints on the method of collecting and reporting on an individual’s credit history. The Fair Credit Reporting Act (15 U.S. Code §§ 1681 and following) covers all aspects of credit reports, including your access to your file, your right to dispute information in it, and steps you can take to correct inaccurate reporting. It also regulates investigative background reports, including your right to be told that such a report has been requested. Some states have their own laws that give consumers more protections, such as limits on credit check fees.
Credit reports show your credit history for the past seven years, including whether you have ever been:
A credit report will also state whether you have filed for bankruptcy in the past ten years.
If you’ve never borrowed money or used a credit card, the report will have large blank spaces which would normally be filled with a consumer’s history. Ironically, a landlord may refuse to rent to you because you don’t have a good history of debt management, even if you have been a fastidious on-time, cash-only consumer! The landlord will be worried that the first time you encounter lean times might be when the rent is due—and the landlord has no way of knowing whether, if this happens, you’ll be able to put your rental obligation at the top of your list.
Landlords can charge a fee for the cost of the credit report itself and their time and trouble to order it and read it—$30 or $40 is common. You can call the credit bureau to verify the actual cost of getting a report. Some states regulate how much the landlord can charge. Contact your state consumer protection agency to find out if your state has set a limit.
Some unscrupulous landlords collect credit-check fees but never run a credit check, pocketing the money instead. If your landlord has done this, you’re entitled to a refund. If you suspect this illegal behavior, contact a credit reporting agency as soon as you’ve been rejected by a landlord to see whether or not the landlord actually requested your report. If he didn’t, ask for your money back; if you get no results, contact your state’s consumer protection office.
If a credit report was ordered and you decide not to take a rental unit or the landlord chooses someone else, you are not entitled to a refund.
A landlord who does not rent to you because of negative information in your credit report is legally required to give you the name and address of the credit agency that reported the negative information. The landlord must also tell you of your right to a free copy of your credit report from this agency.
Because your credit report is so important, you should always check it before you start your housing search. The three largest credit bureaus, with offices throughout the United States, are Experian, Equifax, and TransUnion. Virtually every credit report in the U.S. is generated by one of these three agencies. They compile credit information on individuals and provide reports to affiliate companies and landlords and others upon request. You can obtain a copy of your own credit report from any or all of these agencies. Better yet, go to annualcreditreport.com and get a free copy (courtesy of a Federal Trade Commission (FTC) rule that allows consumers to receive a free copy of their credit report every 12 months).
Once you get your credit report, make several copies to give landlords when you apply for a rental. While landlords may want to order your credit report directly (some may fear that you’ve doctored your copy), it’s worth a try (and will save you money, especially if you're applying from several rentals).
Checking your credit report will give you the opportunity to correct or clear up any mistakes, such as out-of-date or just plain wrong information. It’s all too common for credit bureaus to confuse names, addresses, Social Security numbers, or employers. Especially if you have a common name (say, John Brown), chances are good you’ll find information in your credit file on other John Browns—or even John Brownes or Jon Browns. Obviously, you don’t want this incorrect information given to prospective landlords, especially if the person you’re being confused with is in worse financial shape than you.
Looking for inaccurate information isn’t the only reason to check your credit report. If your report contains accurate but damaging information, it’s better that you know exactly what it says before your prospective landlord sees it. Seeing it first enables you to anticipate an objection and formulate an explanation, which will better your chances of convincing the landlord that your financial troubles are all in the past.
If you see entries in your report that are wrong, take action. Contact the reporting bureau and ask for an investigation form. On the form, list each incorrect item and explain why it’s wrong. Under federal law, the credit bureau must investigate within 30 days (in some states, it’s less). If the investigation confirms that you are right (or if the creditor who provided the information can no longer verify it), the bureau must delete the information from your file.
Unfortunately, a request for an investigation does not always right the situation. If the credit reporting agency fails to remove inaccurate or outdated information, lists a debt you refused to pay because of a legitimate dispute with the creditor, or reports a bogus lawsuit against you that was abandoned, you have the right to place a 100-word statement in your file, giving your version of the situation. Be sure to submit such a statement immediately if your situation fits one of the above descriptions. For more information on credit reports, including how to correct inaccuracies, contact the Federal Trade Commission.
Keep in mind that if one credit bureau has inaccurate information on you, it’s likely that others do, too. If you find errors in your report from one credit bureau, be sure to check your files at the other two agencies.
If your credit file shows negative but accurate information, or you have no credit history because you’re a first-time renter and have never borrowed money or used a credit card, there are steps you can take to look better to prospective landlords:
For a detailed description of how to obtain a credit report and challenge its contents, and for information on your state laws, see Solve Your Money Troubles, by Robin Leonard and Margaret Reiter (Nolo). For suggestions on how to reestablish your good credit, see Credit Repair, by Robin Leonard and Margaret Reiter (Nolo). For useful articles on consumer credit and credit reports, see Nolo's Consumer Protection Law Center.