It’s a common misconception that good credit is only important if you’re planning to take out a loan. The reality is that a solid credit history will enable you to accomplish other financial tasks, too.
For instance, maintaining a positive credit profile will go a long way toward helping you score the apartment rental of your choice.
What it means to have good credit
First, let’s be clear about what it means to have “good” credit. Your credit history is a detailed catalog of information about your past habits with managing borrowed money. This data is contained in your credit report, and examples of positive information are on-time bill payments and low balances on your revolving accounts.
The details of your credit report are used to create your credit score. The dominant credit scores in the United States are the FICO score, produced by the Fair Isaac Corp., and the VantageScore, jointly developed by the three major credit reporting agencies. Both scores typically range from 300 to 850, with a higher score being better.
Banks set their own requirements for the credit score needed to get financial products. But in general, a score of 690 or higher is considered “good.” Scores of 720 or higher are typically viewed as “excellent.” It’s smart to check your own credit to know where you stand. You can get a free credit score from several personal finance websites, including NerdWallet; look for a site that also offers free credit report information.
Your credit may affect rental decisions
Prospective homeowners are usually keenly aware of the importance of their credit in obtaining a mortgage. But before taking on a tenant, most property owners want to see a clean track record of on-time bill payments, and they verify this by running a credit check. Many landlords reason that someone who hasn’t made good on financial obligations in the past is unlikely do so when the rent comes due.
Consequently, keeping your credit in good shape will make it much easier to get the apartment of your choice. This isn’t to say that you can’t work around bad or limited credit when it’s time to score some new digs. But you might have to negotiate a bit with your future landlord, which often includes offering up something tangible to make you a more attractive tenant.
For example, many people have success with offering to provide a larger security deposit or getting references from past landlords or employers. But this is far from ideal; it’s much better to take steps to get and keep good credit so that your rental application will be accepted without you having to jump through hoops.
How to make your credit sparkle
Building a good credit history might seem daunting, but it won’t be if you follow the steps below:
- Pay all your bills on time. This is the most important thing you can do to keep your credit in shape.
- Don’t let the balance on any of your credit cards exceed 30% of your credit limit at any point during the month.
- Start using credit responsibly as soon as you can.
- Only apply for credit you actually need.
- Similarly, don’t sign up for too many credit cards at once. A good rule is to keep at least six months of time between each application.