I work for a landlord and part of my job is screening tenants. That means I run credit reports every day; and decide whether or not an applicant is approved. Most of the time, when someone is rejected it is because many people don’t understand the basics of how credit reporting works.
So here are some tips on the most common mistakes I see…
1. Understanding the requirements
Before you are about to have your credit ran, the first thing you should know are the requirements. Most places — whether it is a landlord, a credit card, a utility company, or anywhere else — has a set of standards. Each industry has their own government requirements along with industry wide standards.
Do some research and be familiar with what is common in your area. Before you apply, ask what those standards are specifically with the company you are applying with. If you are aware of your current financial situation, most of the time you will know before running the report if you will be approved. If the person you ask is unsure or gives a vague answer, ask to speak to the person who will be scoring the reports.
2. Not knowing you have credit
By far the number one thing I hear from potential applicants is that they don’t have any credit. Of those people about 75%-80% do have credit, sometimes long-standing accounts.
Before going to apply, check Credit Karma, or a similar site. If you already have a credit card, check out your online account — many card companies include the additional perk of being able to check your score once or twice a month! Not only may you have a collection or open account you are unaware of, but is also a great way to check for any fraudulent activity under your social security number.
Also be aware that there are multiple credit reporting agencies. You may have a high score on one agency and a low score on another. So ask where the report will be pulled from, so you can compare your report to their requirements in the most accurate manner.
3. Even having your credit run will affect your score
Before handing out your social security number, ask what type of pull they will do on your credit. If they say it is a soft pull it will not affect your credit nearly as much as a hard pull. You will see soft pulls with things like utility companies. But, if it is a hard pull, expect it to make a difference in your overall score. Every hard pull you have will stay on your credit report for about two years.
A big mistake I see typically with younger applicants is that they will go and apply for a large amount of credit all in one day. Applying for multiple credit cards, car loans, or several apartments, in a short amount of time might seem savvy for the sake of comparing offers, but each time you have a pull on your account it will slightly lower your overall score.
Many big name stores will offer a one time discount if you apply for their store card. This transaction usually happens so fast that people don’t even think beyond the discount, but be wary of how that 10% off might affect your chances of obtaining needed credit in the future.
4. Medical bills, student loans, and parking tickets
Collections, or accounts that were left to go unpaid do more damage than just the annoying phone calls. If you have a new collection on your account it will lower your overall score, but it will also be seen as a separate infraction to the person reviewing the report. Many companies do make exceptions for student loans and medical bills, and a few will even make exceptions for parking tickets. Be sure to ask about any company policies regarding these common collections.
5. Lifespan of collections
A typical collection will stay on your report for seven years. In the past I have seen collections pop up from 15+ years ago.
If your credit is run, and they explain that a collection was part of their decision, and it is older than seven years, ask them to talk to their finance manager. Many times they will take that out of your scoring factor, and it can make a difference.
Please note: The person running your report will rarely contact the credit bureau on your behalf. So if something like this does come up it would be your responsibility to contact all of the agencies to have it officially removed from your record.
6. Recent payments
If you have been recently rebuilding your credit, wait 30-60 days after your most recent payment before going to have your credit run. Most companies do not report to the credit companies daily so you will want to wait until that information actually hits your report, removes the amount owed, and ups your score before having someone run you through.
Having your credit run is always a nerve-wracking experience. Just keep in mind that knowing what is ahead makes the process much easier. I know every time I have had my report run I feel like I am being judged by strangers, but that is not usually the case. Often the people scoring are just running the numbers though the system and know that even if there are some blips on your report that you are more than just the numbers on the screen.