Renting or purchasing an apartment can be a really scary process, but there is always an element of added stress if you know your credit score isn’t up to par. Just a few points can mean the difference between landing and not landing your dream apartment, or getting and not getting approval for the co-op digs you’ve been searching months for.
We’ll break it down for you so you aren’t going into an apartment hunt with the big credit score question mark. How are scores calculated? And what can you do to improve yours so you’ll always be at the top of the list for landlords, lenders and co-op boards?
Check out your report. The first step is take the plunge and pull your credit report. It might be stressful, but go through the entire report to be sure there are no errors or inconsistencies. Any late payments that were actually made on time, debts you paid off that show as outstanding, or instances of fraud should immediately be reported so that it can be removed from your report to increase your score.
How is it Calculated? Your credit score is meant to measure your overall creditworthiness. One of the major factors in your credit score is your credit-utilization ratio, which is your total credit granted to you against your total credit use. For instance, if you have a $9,000 balance on a credit card with a $10,000 credit limit, your ratio of 90 percent may result in a reduced credit score. Other factors come into play as well, including number of open accounts, number of recent inquiries for new accounts, bills paid on time or late, and significant loans like home or car loans.
What does your score mean? The most commonly used credit scoring methods use scores in a range of 300 to 850, and the higher your score, the better your credit. The average score from FICO, a commonly used credit agency, is 695. Typically, anything below 629 is considered bad credit while anything from 629 to 689 is fair. Over 690 is thought to be good and over 720 is excellent.
How does your credit score affect you? Let’s say you have a poor credit score, in the low 500s. You may still be able to get credit, depending on what it is, but it will come with very high interest rates and require even larger deposits. However, if your credit is excellent, or over 720, you’ll likely get the best interest rates and – given you meet other financial requirements – qualify for that dream apartment.
If your credit score doesn’t exactly thrill you, you’re not alone. But, we have good news. With a little focus and hard work, you can right this ship rather quickly. How?
Pay down existing balances. If you have outstanding balances on any of your credit cards, now is the time to pay down that debt. Your total debt compared to your available credit will be a determining factor for your score. It’s best to start with the credit cards with the highest total balance, because any balance over 90 percent of the card’s limit will be a bigger red flag for the credit bureau.
Keep accounts open, even if you aren’t using them. It may feel natural to close any excess credit cards as soon as you’ve paid them off but you should think twice about this. The age of your accounts is also factored into your credit score. The longer you’ve had accounts open, the more positively this is viewed by the credit bureau.
Pay all your bills on time. When you’re in the process of improving your credit score, this is the most important time to be sure you’re paying all your bills on time. Any delinquent payments will have a major negative impact on your credit score.
Don’t open new accounts if you don’t have to. While you may think opening new accounts or applying for additional credit cards will help with your debt to credit ratio, your credit report will reflect any inquiries that occur when opening a new account. If you have an excess amount of recent inquiries, your score will go down. Try to work with what you already have and focus on paying down debt as opposed to opening more lines of credit to improve your debt to credit ratio.
Remember, your credit score continually changes as your finances do, so there is no magic formula. But if you keep these tips in mind and stay on top of your finances, you’ll be on the way to 750 in no time.