Why having a good record matters and what you can do to make sure your record doesn't stand in the way of your next apartment rental.
1. As a rule, credit checks are required in order to rent apartments in Queens, NY.
Most New York landlords require a credit check history and score before an owner will lease an apartment for rent to a new tenant.
With a good score you'll be in a position to choose where to live. With a poor score, your options may be limited.
Usually only a few landlords will work with poor report. Conversely, the whole market is open to those with a good record.
2. With good history you will not be required to pay a larger than average security deposit.
Those with bad report can be asked to pay several months in advance rent as security in order to obtain lease approval.
Some renters with poor history end up paying non-refundable application fees to several landlords before getting an approval for an apartment.
Moreover, brokers may be less willing to negotiate on their commission with those with poor scores because they know their options are limited.
Therefore, bad report means more hassle and higher costs for renters.
3. Good credit entitles you to lower interest rates on a mortgage.
It can enable you to borrow money at a cheaper rate when buying a house or apartment.
When talking about mortgages, even a small difference in interest rate can save you thousands of dollars in the long run.
4. Some jobs require a credit check. You don't want to be turned down for employment because of your financial history.
Why credit matters when renting an apartment in Queens, NY
Credit reports allow landlords to see an applicant's past and present financial performance and reliability with regard to financial obligations.
Landlords use the report to evaluate a renter's expected future financial performance.
This can help landlords in deciding on the risk level associated in renting to a particular applicant and how likely the landlord will be to get rental payments on time.
What landlords are looking for on your report?
A credit report shows the applicants' past financial performance through their history of payments to other creditors.
The report itemizes the number of negatives such as late payments and collections. Obviously, the fewer negative items the better.
An owner feels more secure when there are several accounts on a report where payments were made on time over a long period.
Also, any outstanding debt owed is revealed on the report.
From a landlord's perspective, the more you owe, the more likely you are to default to one or more creditors.
The less you owe, the more money you'll have on hand to service existing debt.
Owners therefore look at the monthly payments due on outstanding debt and evaluate if an applicant can service that debt and pay rent within their income level.
This is commonly referred to as debt to income ratio. Most landlords require an income to debt ratio of 50.
Which means the gross annual income should be at least 50 times the monthly rent and other debt obligation (so for example the gross annual income expected for a
$1000 rental property is a minimum of $50,000 assuming no other debt obligations exist).
Why landlords have strict credit requirements
It can be very costly for a building owner to rent an apartment to a tenant who doesn't pay rent on time.
Owners have to pay their own mortgage, property taxes, heat, and staff salaries on time even if their tenant/s don't pay their rent on time . . .
or at all. It is not uncommon for owners to default and loose their entire property because tenants failed to pay their rent and in consequence made their landlords miss mortgage and property payments themselves.
Additionally, the process and legal fees of evicting delinquent rent tenants in New York is very expensive and time consuming (proceeding can take up to 6 months to complete).
Owners in New York are not allowed to change the apartment door lock and take any action against their tenant/s even if the tenant doesn't pay their rent.
Instead, owners must bring a costly lawsuit through the civil court system. Legal fees associated with such lawsuits may cost $6K-$10K in addition to the financial loss of rental payments during the process.
In addition, if an apartment is damaged, landlords must cover the cost of repairs in order to re-rent.
So in summary, a landlord assumes thousands of dollars of risk with each occupant they rent to, so are very careful in screening for tenants.
How landlords assess "good credit"
Owners in Queens normally require "good to excellent" credit histories.
A score of 700 or higher is considered good. Scores over 675-700 with no negative items may be enough for most owners.
Some reports and scores can be close to 675-700 but may contain negative items (e.g. late payments) and therefore may still be rejected despite the good score.
In addition to a score, landlords look at renters' debt to income ratio as a critical factor. A high debt to income ratio may be a reason for denial in spite of a decent score and no negative items on a report.
Therefore, it's not only the score that matters but negative items and outstanding debt amounts that count as well.
Some owners establish a minimum score of 730 and may not approve your application if you don't meet this minimum.
Cosigners and guarantors
Landlords may accept guarantors when a tenant has no or little credit established or when the income of an applicant is below the minimum required income for the apartment.
A guarantor should have excellent credit and income of 80 to 120 times the monthly rent there are guarantying (so for a $1000 rental, the guarantor must have an annual income of $80-120,000).
The reports landlords check
Landlords normally obtain reports from three bureaus (Equifax, TransUnion, and Experian).
In addition, landlords obtain a landlord-tenant report. This report shows if a tenant has been to court with a landlord in the past.
Regardless of who initiated the lawsuit or who won the case, a tenant with a landlord-tenant record on their report may be rejected automatically when applying for an apartment rental in Queens.
In summary, it is crucial to keep a clean credit report for the purpose of renting apartments in Queens NY.
The price you pay for a bad financial history when renting an apartment is multiplied exponentially when buying a property.
In the next few weeks we will post a new article explaining the steps you can take to establish and maintain good scores.