Damaged Credit, Broken Lease, Self-Employed: Rental Application Declined?

Damaged Credit, Broken Lease, Self-Employed: Rental Application Declined?

By Linda Mullins

Landlords want reliable tenants who can be trusted for timely payments and who have decent credit. But people with low credit scores, a prior broken lease or who are self-employed have an extra layer of credibility to prove: Are they reliable enough to be long-term tenants? Maybe.

For tenants who do not want or don’t have the option of a co-signer, RentSURETY (a lease guarantee agreement) is one option. Paying a higher upfront payment is another. Still, there are more ways to get one’s financial reputation in order even before that. It will require some information-gathering and due diligence on the renter’s part. Let’s dig in.

Be Credit Score Savvy

Tenants can work toward repairing damaged credit by knowing their credit information. Free annual credit reports from Experian, Equifax and TransUnion are available through AnnualCreditReport.com and CreditKarma.com

Knowing one’s Fair Isaac Corporation (FICO) score and all accounts listed in a credit profile enables tenants to clean up delinquent accounts, charge-offs and other negative data to (potentially) increase their credit ratings.

When viewing credit reports, review the Fair Credit Reporting Act  (FCRA). It outlines how long certain information can remain on the credit report. Typically, closed or charged-off accounts remain on the credit bureaus for seven years while a bankruptcy is reported for 10 years. 

Equipped with this information, take the following actions to help improve credit ratings:

  • Dispute any errors with each individual bureau and specific accounts.
  • Close credit card accounts with significantly high interest rates or high annual fees.
  • Contact the creditors requesting removal of the negative history.
  • Sign up for Experian Boost. This is the only credit provider that may increase scores with help from consistently paid utility bills, streaming services and phone bills.

While it may seem counterproductive to keep credit cards that are used rarely, closing active cards can lower a credit score. Experian confirms that it’s a good idea to keep older cards on one’s account to confirm stability and to avoid having a thin credit file. 

Broken Lease: Communicating With Landlord Is Key

With a previous broken lease in a tenant’s history, a new landlord will want to know what happened, what has changed and why it won’t happen again. Here are some things to consider:

If possible, before applying for a new lease:

  • Communicate with the landlord and creditors to resolve any issues.
  • Pay any balance owed to the prior landlord.
  • Get up to date on current delinquencies to creditors.
  • Get any resolutions in writing from the prior landlord or creditor.

A satisfied debt, or a repayment agreement for debts owed, shows earnestness and reliability to a new landlord.

Photo credit: Kelly Sikkema/Unsplash

Confirming Stable Pay While Self-Employed

Proof of income is typically required to rent a property. Self-employed individuals and entrepreneurs don’t have a pay stub as with a W-2 employee. These two groups will need to provide proof of earnings another way. 

Ideally, monthly profit and loss (P&L) statements are properly collected. If P&L statements are unavailable, gather bank statements, income deposits and any accounts receivable to satisfy the proof of income requirement. Not only will landlords be looking at current income but how steadily this income flows in.

Rental properties have a minimum rent-to-income ratio requirement to ensure a prospective tenant can afford to live there. Typical requirements are an income of 2.5 or three times the monthly rent payment. For instance, if a renter’s income is $5,000 per month, a $1,500 rental max is ideal to meet a 30% payment-to-income ratio. 

Increased knowledge of one’s financial history, debt repayment and communication should significantly improve a renter’s chances of securing a new lease. By preparing for the barriers before the landlord or Realtor can, prospective renters may boost their chances of an approved application.