Acquiring debt is part of modern life, whether you took out loans to pay for school or used a credit card to make large purchases. But the way you handle your debt plays a major role in your credit history, which can affect your ability to qualify for a rental. You may be wondering whether you can rent an apartment with an account in collections, and this guide outlines the answer to that question, along with tips to improve your credit history.
What happens when your debt is in collections?
If you fail to repay a debt you owe, the creditor may turn the account over to a collection agency. Agencies purchase consumer debt at heavily discounted rates and attempt to collect on each debt through different methods. When an account goes to a collection agency, this action can have a significant negative impact on your credit score. After bankruptcy, it’s one of the most damaging things to appear on a credit report.
Additionally, an account in collections can remain on your report for up to seven years, even if you pay it off. One of the reasons it’s so damaging is that it demonstrates significant delinquency. Most creditors attempt to collect on accounts for months before turning them over to agencies. Your payment history makes up 35% of your score with FICO, one of the top scoring agencies. However, all hope is not lost to rent with collections. You can take steps to improve your chances of qualifying for a rental.
Why credit matters when renting an apartment
When you submit an application for an apartment, house, or another rental unit, you typically agree to a credit check. The property owner or manager uses this information to assess the level of risk they’re taking on by renting to you. A low credit score can serve as a warning to a property manager as it can indicate an inability or lack of desire to make payments on time.
Tips to qualify for an apartment with collections
Although having an account in collections may make it more difficult to qualify for an apartment, you can take steps to improve your chances. Follow these tips when you’re applying for rentals and talking with property managers.
1. Review your credit report
The first step for anyone facing a credit check is to do some research. Review your own credit history to confirm the accuracy of all the information. If you find anything that shouldn’t be there, you can file a report with the three major credit reporting bureaus to have it removed. You may also find items that you weren’t aware of, such as outstanding debt or accounts that went to collections. Looking at your credit report is helpful, especially when you’re applying for an apartment.
2. Try to improve your score
You might also look for ways to boost your credit score before a property manager makes an inquiry. If you have debt with various companies, consider consolidating it so you can make one payment rather than missing payments with multiple creditors. You could also try to pay off some of the debt you have, as doing so can help your credit improve. Even paying off a few hundred dollars in debt can make a positive difference.
3. Be honest about your situation
It might be tempting to submit an application and hope for the best, but your chances to rent with collections improve when you’re honest and upfront about your situation with the person reviewing your information. By telling the truth about how you got into debt or why an account went to collections, you can emphasize your honesty, an appealing quality in a renter. If you paid off the account, you can also point this out. Although it will remain on your credit report, a paid-off account probably looks less concerning to a property manager than one that’s still outstanding.
You might also be able to appeal to their empathetic side, especially if other factors played into your situation. For example, if you suffered from health issues and couldn’t work for a period, explaining that can clear up why you fell behind on payments. Look for an opportunity to discuss your application and situation with the property manager before you submit it.
4. Consider renting a room from a property owner
Some rental agencies and apartment complexes have strict requirements for renters, and it’s difficult to get around those. However, renting from a homeowner who has a room available might be a better option if you have an account in collections. Homeowners don’t always perform credit checks on applicants, especially if they don’t have a large pool to consider as renters. You’re also more likely to meet with the homeowner in person when you check out the space, and you can use this opportunity to introduce yourself and make a positive first impression.
5. Offer a higher deposit
If you can swing it, consider offering a larger deposit than what’s required for the rental. This action can minimize some of the risk, as the property owner or manager can use the extra funds if you fail to pay your rent once or twice. Offering a higher deposit can also demonstrate your financial security, making you a more appealing candidate.
6. Provide references
References can go a long way when you’re applying for rental units, especially if you can get them from property managers or owners whom you’ve rented from in the past. You may also ask your employer for a reference letter, in which they could vouch for you as a stable employee to show the security of your main source of income.
By taking a few of these steps in the rental process, you might improve your chances of scoring an apartment or home, even with an account in collections on your credit report. If your score is especially low, you may need a co-signer who has a higher score. But there are certainly options available to you, and you should be able to find a place to call home that meets your needs.
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