As the country deals with the economic blows of the housing crisis, many former homeowners are now facing a sad irony: Due to their foreclosure, their credit has deteriorated, and due to their credit, they may have a more difficult time getting a rental application approved. Fortunately, the current housing climate favors the renter, and following a few simple guidelines can significantly increase the chances of successfully negotiating a rental agreement.
How a Foreclosure Affects Your Credit
Once a homeowner has lost his or her home due to foreclosure, it will almost certainly affect the homeowner’s credit in a substantial way. If you have a foreclosure event, you can expect your credit score to drop anywhere from 100 to 250 points. The belief that you can avoid a negative impact altogether, by choosing an alternative type of foreclosure, is a myth. Any type of foreclosure will negatively affect your credit score.
Once you have had a foreclosure, it becomes extremely important to reconsider your other credit accounts. If you have paid regularly and on time on your other bills, such as credit cards and car loans, your credit may not take as big a hit from the loss of your home.
It is also important to understand how time affects your score. Although your credit will be heavily impacted just after a foreclosure, it will have its greatest effect for the first twenty-four months. After that time, the foreclosure will be weighed less and less in a credit determination. After seven years, the foreclosure will drop off of your credit record completely.
How Your Credit Score Affects Your Application
Because of this, the most important consideration when looking at how a past foreclosure will affect a rental application is the easiest to determine—the more recent the foreclosure, the worse its effect will be. A prospective renter should also look at his or her credit history as a whole. Some landlords will only look at a person’s credit score when considering an application. Others, however, will look beyond the numbers to the full credit history. Having a strong history where the foreclosure is the only negative, or where there are very few other minor negatives, can make a difference.
A prospective renter may also be helped by the current economic climate. Some landlords are more willing to overlook credit problems, and may even forgo a credit check if it means maintaining occupancy in a unit.
Even if the landlord isn’t willing to completely forgive a foreclosure, there are several things a prospective renter can do to increase the chances of an approval. A good job history helps, as does an up-front approach to the problem. Often, a renter with bad credit can “sweeten the deal” by offering to double the deposit amount, or offering to pay a slightly higher rent. Other possibilities include obtaining a co-signer with good credit and providing excellent personal references.