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Bad Credit vs. No Credit: Which Is Worse When Trying to Rent an Apartment?

Credit Score, Personal Finance
Which Is Worse When Trying to Rent an Apartment: Bad Credit or No Credit?
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It’s not just high demand or steep monthly payments that could come between you and the apartment you want to rent. There’s another potential obstacle: your credit score. Without good credit, you’re at a disadvantage against other applicants. But who has a harder time renting an apartment: people with bad credit or those with no credit?

What’s the difference?

Bad credit and no credit are similar in that they’re both a long way from good credit, but beyond that they’re quite different.

Having no credit score indicates a lack of credit history. If you have no credit, you’ll need to build credit before you can count on qualifying for an unsecured loan, many credit cards or many rental leases.

Bad credit is the result of a poor credit history. If you have bad credit, it means you have been approved for loans or credit cards in the past but you’ve been late, delinquent or otherwise unreliable with your payments. (Two other unsettling possibilities are an error in your credit reports or potential identity theft.)

Which is better?

It’s complicated. If you were a landlord, would you rather take a chance on someone with no established credit, or give a second opportunity to a person who has dings on his or her credit history?

One strategy is a gamble because there’s no record of money management at all, and the other because the applicant has a record of poor money management. Some landlords may opt for the renter with a clean slate, while others may desire some sort of financial track record, even if it isn’t a great one. As a general rule, though, having bad credit is almost always worse than having no credit.

The bottom line: Neither situation is ideal. Landlords would much rather choose someone with good credit. But even if you have bad credit or no credit, there are some ways you can compete with more-qualified applicants and secure that apartment:

  • Explain your situation. Check your free credit reports before you meet with a potential landlord. This will allow you to catch any errors and prepare to explain why your credit may have taken a hit.
  • Pay more upfront. Make yourself a more desirable renter by offering a larger initial deposit than what the landlord requires.
  • Prove yourself. Demonstrate your trustworthiness as a renter with measures other than your credit. This may include proof of your income, letters of recommendation or referrals.
  • Get a co-signer. Sometimes a landlord won’t approve you on your own, despite your best efforts. If that’s the case, consider adding a co-signer to your lease. It’s a big ask, though: The co-signer is on the hook for your monthly rent payments if you don’t make them, and having the co-signed obligation could limit their own access to credit. And if you run into financial difficulty, it has the potential to ruin both their credit and your relationship.

Next steps

After you get settled in to your new living space, you can work on building your credit.

If your problem was no credit, you may be able to use rent payments to beef up your credit history.

If your problem was bad credit, you may have little access to credit cards. If you don’t quality for credit cards for bad credit, you may need to start with a secured card and/or a credit-builder loan. Using both methods can give you a credit history that includes both revolving (credit card) and installment (equal payments over time) loans — and that will help boost your score even more.

In any case, the key to better credit over time is paying all your bills — including the rent on your new place — on time and in full.

Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email: erin@nerdwallet.com

This article was updated July 27, 2016.