At the top of most Landlord's applicant criteria is determining what amount of monthly income is sufficient to support the monthly rent. Each landlord is different and varies, but a general rule of thumb is that your rental income must be 3x the rent to qualify. However, depending on the applicant’s circumstances, Landlord's may bend the rules a little, but not by much.
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The reason for this strict income requirement is that Landlord's want to be paid their monthly rent. Contrary to popular belief, Landlord's put up a significant amount of money, at least 20%, to acquire a rental property. Accordingly, Landlords are seeking opportunities to protect themselves from sudden unexpected events that may affect the tenant, such as loss of a job, someone getting sick, disability or even death. In other words, all Landlords are trying to do is mitigate their risk that a tenant won't be able to pay their rent.
For student housing, it’s really a different ball game. In this case, Landlord's generally understand that students don't have a full-time income. Therefore, student housing Landlords, like us, Lehigh Student Housing Rentals, Inc. (“LSHR”), may require other forms of "income," such as student loans, scholarships and financial aid packages to satisfy this requirement. Colleges and universities can provide a confirmation letter to this extent, which Landlord can then verify. Another requirement might be a guarantor, to guarantee that the tenant's rent will get paid, usually a parent or grandparent. If relying on a guarantor, most Landlord's will require a completely separate application to determine the credit and income of the guarantor.
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Finally, Landlords may require additional security or an extra month’s rent if there is no guarantor, or other circumstances that require it, such as low credit, no income, or a bankruptcy. However, every student's application is different and there are always rare exceptions to the general rules.
Nonetheless, it is important to be candid with the property management company and explain to them your financial condition so you’re not in a home you can't afford. The last thing Landlords want are to put tenants in a difficult financial position. So next time you're looking for a place to live, ask yourself if your income is 3x the monthly rent. If not, consider looking at other houses more in your price range. If you do meet the 3x monthly income requirement, apply right away.
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Why is building your credit so important? Well, as mentioned in our last blog post, What's your credit score?, landlords generally require a credit application, which can impact your selection of off-campus housing. For a list of properties available, click here.
More importantly, building and increasing your available credit can help increase your credit score. How? By reducing your overall credit utilization ratio, which is the ratio of outstanding credit divided by total credit available. Credit utilization weighs in at 30% of your overall credit score. So, reducing your credit utilization ratio, by increasing your available credit, ultimately increases your credit score just by building credit.
For example, if you have $100 of credit and you have a balance of $10, your credit utilization is 10% ($10/$100), which is not so good. If you build your credit to $200, your utilization ratio is now only 5% ($10/$200), which is much better.
It is true, however, that a credit card application generally results in a hard pull, or inquiry, on your credit score. The result is a temporary hit to your credit score by 5 to 6 points, which reverses itself in a few months at the maximum. What's important is the increase in credit available, to decrease your credit utilization ratio and increase your overall credit score.
You're probably thinking, that's crazy and contrary to all the advice you've ever heard. And that was the advice we also received, until we learned about how credit scores are actually calculated! If you have very low credit outstanding, you may already have a very good credit score. Sign up for a free account at Credit Sesame to check your credit score. If you do have a very good credit score, consider applying a travel rewards that offers significant travel benefits, like the Chase Reserve rewards credit card that comes with a 100,000 points bonus if certain spending thresholds are met and a $300 travel statement credit, just to name two.
With that said, credit is a double edged sword and must be used cautiously. If you have credit balances outstanding, and possibly a lower credit score, getting approved for additional credit may prove difficult. That doesn't mean you should not try to increase your credit available or plan to pay off your balances, even just the minimum payments. Paying timely can contribute up to 30% of your credit score, so pay on time, every time, even if it's just the minimum payment.
Furthermore, credit cards sometimes have promotions with low or zero introductory rates, which could help reduce the interest fees charged to your outstanding balances. Figuring out a plan once you are in debt is vital, which is why we recommend paying off credit balances in full every month to begin with.
So next time you get a credit card offer in the mail, don't be so quick to throw it out. If it's a good offer, consider applying. Your credit score will thank you.
5 (Totally Legal) Tricks to Boost Your Credit Score Fast
Generally, a credit report will include your credit score and is an objective way for a landlord to determine whether to accept or reject your application for housing. A credit score, even though it does not tell the whole story, provides the landlord with information into the applicant's financial history.
As a landlord, or property management company acting on behalf of a landlord, we review your credit history to understand how you manage your finances, specifically your credit, and whether you pay your bills on time, late, in full, or have balances due and outstanding. Your credit score and history is ultimately but one of several factors, which we will discuss in subsequent posts, that goes into the decision of whether to accept your application. As such, understanding how your credit score works and what information is on your credit score should be a top priority for students seeking to apply for housing for the upcoming 2017 - 2018 school year. Check out our properties available here.
There are several free methods of requesting your credit score, such as Credit Sesame, that allow you to review your credit for free and without an inquiry. Other free sites are available as well.
One major factor, accounting for 35% of your credit score, is your payment history. In other words, do you pay your bills on time? If you pay your bills on time, even if you carry a balance, your credit score is likely going to increase over time. The more late payments and delinquent accounts, the lower your credit score. Credit Sesame will show you what your payment history is, so you could see how you pay your bills.
Another key credit score factor is your credit utilization. Your credit utilization accounts for 30% of your credit score. How much credit do you have outstanding relative to your total credit available? The higher your balances, the higher your utilization rate, the lower your credit score. Credit Sesame will show you what your total credit available is and what your total outstanding balance is.
So, if you don't know your credit score, what are you waiting for?
Sign up for Credit Sesame today!
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#LSHR is a blog about off-campus student housing, financial education, networking, travel and helping you build your career.