Failing a credit check for renting typically occurs when a tenant's financial history raises concerns for the landlord or letting agent about the ability to pay rent consistently. Credit checks help landlords assess a prospective tenant's reliability in handling financial commitments. Here are some common reasons why someone might fail a credit check for renting:
1. Poor Credit Score
- Late payments: A history of late payments on credit cards, loans, or other bills can indicate financial instability.
- Defaults: If you’ve failed to make payments on past debts, this could signal to a landlord that you may struggle to pay rent on time.
- CCJs (County Court Judgments): If you've been taken to court over unpaid debts and have a CCJ against your name, this can significantly impact your creditworthiness.
- Bankruptcy or insolvency: Having a bankruptcy on your record can make landlords wary of your financial stability.
2. High Debt-to-Income Ratio
If you have significant outstanding debts, such as credit card balances, loans, or overdrafts, compared to your income, it may indicate you’re financially overextended. Landlords might see this as a red flag, suggesting you may struggle to afford rent alongside your other financial commitments.
3. No Credit History
- Having little or no credit history can make it difficult for the landlord to assess your reliability. This is common for young people, recent immigrants, or those who haven’t used credit products like loans or credit cards.
- Without any credit history, landlords might not be able to judge your financial behaviour, which could lead to a failed credit check.
4. Low Income or Unstable Employment
- If your income is low relative to the rental price or if you have unstable employment (e.g., temporary contracts, self-employed with irregular income), landlords may worry that you won't be able to keep up with rent payments.
- Some landlords require tenants to earn at least 2.5 to 3 times the monthly rent. If your income falls short of this ratio, you could fail the credit check.
5. Inaccurate or Incomplete Information
- Providing incorrect or incomplete information on the rental application could result in failing the credit check. For example, missing out previous addresses, employment history, or financial details can trigger a rejection.
- This could also happen if there’s a discrepancy between the details you’ve provided and what appears on your credit report.
6. Multiple Credit Applications
- If you’ve recently applied for several credit products (loans, credit cards, etc.), it could signal financial distress to the landlord. Multiple credit applications within a short time can lower your credit score and raise concerns that you may have cash flow problems.
What Happens If You Fail a Credit Check for Renting?
Failing a credit check doesn’t necessarily mean you’ll lose out on the rental property. Here are some possible next steps:
- Guarantor: The landlord may ask you to provide a guarantor, someone (usually a family member or friend) who agrees to cover your rent if you fail to pay. The guarantor will also undergo a credit check.
- Larger Deposit or Advance Rent: Some landlords may accept a higher security deposit or request several months' rent in advance to mitigate the perceived risk.
- Alternative References: In some cases, landlords may accept other types of references, such as employment or previous landlord references, to assure them of your financial reliability.
How to Improve Your Chances of Passing a Rental Credit Check
- Check your credit report: Regularly review your credit report to spot any errors or issues that could impact your score and correct them before applying.
- Pay bills on time: Establish a consistent record of paying bills on time to boost your credit score.
- Reduce existing debt: If possible, pay off or reduce any outstanding debts to improve your debt-to-income ratio.
- Build credit history: If you have no or limited credit history, consider using credit products responsibly to build your credit score over time.
Contact Fraser Bond today if you need help navigating the rental process or have concerns about passing a credit check. We provide expert advice for both tenants and landlords to ensure a smooth rental experience.
