Bad Credit? 7 Ways for Renters to Get Approved

The rental market is heating up, as more Americans shift from buying to renting amid a flood of foreclosures, frightened buyers and the disappearance of the home buyer tax credit. Two years ago, when I moved into my last apartment, the place had been sitting on the market for close to four months; when I moved out last month, it took my landlord just four days to find a new tenant.

USA Today reported earlier this month that rental activity is up about 1% compared with 10 years ago; more than 500 cities have seen more homes become rentals.

But with the rise in demand, experts say prospective renters will likely face competition -- and for the first time in a while, a bad credit history may ding your chances of getting approved. "The bottom line is that renters are competing with other renters ... If they are getting plenty of applicants with good credit, there is less incentive to accept renters with bad credit," says Jill Jordan, vice president at Halstead Property in New York.

Whenever the rental market heats up, prospective renters need to do their homework before the open house: Prepare application folders that you can give to unit owners or managers, and include reference letters, your resume -- anything that will help them understand what a responsible tenant you will be. If you're struggling with less-than-stellar credit, however, you need to go a few extra steps. Here are 7 smart tips to help you secure a lease:

1. Prepare to Be Honest

Don't be too down on yourself if you have poor credit; you're not alone. Get emotionally prepared for opening up about your not-so-perfect credit history, and be cooperative. "With foreclosure rates increasing, there are many [people with] less than perfect credit who are struggling but are still responsible and trustworthy people," says Christina Aragon, Director of Strategy & Consumer Insights at Rent.com. "Be honest with your landlord about why you have a low credit score, and determine what 'proof' of overall stability is needed to sign a lease."

2. Work with Individual Owners

The more red tape you have to go through, the harder it may be to secure a lease with bad credit. Sometimes your best bet is to apply for leases where you can have direct and accessible communication with the landlord. "Larger landlords are often non-negotiable about their minimum standards for credit scores and income requirements, so I direct my clients to explore individual property owners who will review a renter's individual situation more compassionately, giving greater weight to interviews and reference letters," says Jordan.

4. Include Your Credit Score
At the risk of having your credit score pulled multiple times by various landlords or property management companies (which can itself negatively impact your score), provide your score yourself. It's not free, but will be worth it if it means keeping your credit score from dropping any further. For about $20 you can purchase a record of your three official FICO scores (each calculated from one of the three credit reporting agencies) at myfico.com. Print out several copies and include that in your application folder.

5. Offer 2 Letters of Recommendation
Also in your application folder have at least two letters of recommendation handy from both your employer and your previous landlord (if applicable). If you've never rented before, you may want to include a second letter from another employer or co-worker.

According Aragon, your employer letter should include: proof of your job security as well as your ability to cover the monthly rental payment and pay rent on time. Not all employers' policies allow for providing such letters, so at the least you should request a letter stating how long you have worked for the employer and your annual salary.
As for the letter from your old landlord, you want it to mention: your track record for paying rent on time, your respect for both the property and the neighborhood, the length of time that you resided at the property and contact information for the previous landlord(s), so he/she can be reached directly.
6. Pay Automatically
Reassure the landlord that your rent will get sent to his or her account through an automatic transfer -- no snail mail. "Often a landlord will feel more comfortable ... if they know that the rental payment is scheduled to automatically come out of your account each month," says Aragon.
7. Consider Insurance
Jordan also suggests looking into companies like Insurent.com that agree to insure your rent in lieu of mom, dad or a rich uncle. At Insurent, the fee is 75% of one month's rent. This should only be a last resort, if you find no other way to secure housing.

Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv and on Twitter/farnoosh
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