Leasing or renting a property is often a financially sound decision. Consumers who choose to lease an apartment do not need to apply for a mortgage and do not have to incur the debt of a home loan. Unlike home ownership, renting or leasing a property does not always have an effect on a renter's credit score, although there are some situations in which it might.
Credit Scores and Credit Reports
Every consumer has a credit score, or scores, that is based on the information found in the consumer's credit reports. Consumer credit reports are documents that contain information about how each consumer has used credit in the past. These reports are created and maintained by credit reporting agencies that work in conjunction with lenders to collect data about individual consumers. Every time a consumer performs a positive or negative credit actions, such as paying bills on time or making a late payment, this information is included in a credit report and can affect the consumer's credit score.
Rental or Lease Application
Before consumers enter into a new rental agreement they must typically file an application with the landlord. The application typically includes a section in which the consumer gives the landlord permission to check his credit reports. The landlord then contacts the credit reporting agencies and asks to inspect the applicant's credit reports. This is known as a "hard" credit inspection or credit check. Anytime anyone performs a hard credit check, the consumer's credit report usually lowers slightly, but only temporarily.
Late Rental Payments
Once the consumer enters into the lease agreement and begins making rental payments, this activity may or may not appear on a credit report. While some landlords make rent payment reports to credit agencies, others do not.
However, if a tenant fails to make a timely payment, the landlord may report the late payment to the credit reporting agencies. Also, if the landlord hires a collection agency in an attempt to collect unpaid rent, the collection agency typically reports the activity to the credit reporting agencies, which results in a lower credit score for the consumer.
If a landlord evicts a consumer, or otherwise sues the consumer for damages or unpaid rent, this too can affect the consumer's credit. If the landlord wins the lawsuit the court grants the landlord a judgment. This judgment is typically included in the consumer's credit report, and will result in a lower credit score. Also, future landlords will be able to see that the consumer has a judgment in connection with a rental agreement, which may make it harder for the consumer to obtain a new lease.
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