When you apply to rent a home, you will need to fill in an application form and provide a copy of your identity document as well as proof of income. You will also need to authorise the landlord or rental agent to request your credit report from one or more credit bureaus. After all, they need to be sure you are the sort of person who will regularly pay the rent.
Your credit report contains details about your personal and credit history, current payments and account balances and any alerts. The information and credit score will vary from one credit bureau to another, depending on which suppliers provide them with information about you.
Credit bureaus use all the information on your credit report to produce a credit score. This is the score credit providers and landlords use to determine whether or not to approve your credit application.
If you have been careful about managing your credit over an extended period, you should have little difficulty getting your rent application approved. The problem occurs when you have one or more alerts on your credit report. You can overcome this, but it will take time and careful attention to your financial affairs.
Application declined
There are a number of reasons why your application to rent may be turned down.
- You have a limited credit history: This applies if you have never had credit before or don't have much experience with credit. Landlords and rental agents want to see a solid track record of borrowing and repaying loans.
- Not enough income: Landlords want to see that you are able to pay the rent. They compare how much you earn each month to how much you spend on debt repayment. If it does not appear you will be able to afford the rent, they will reject your application.
- You have a recent judgment or other legal notice against your name: Serious delinquencies are a sign to landlords that you don’t have enough money to meet your financial obligations.
- If you have negative or adverse bureau information in your credit history – such as late payments or defaults - the landlord may decide to decline your application.
Some other reasons for applications being declined include:
- Balances on existing loans or credit cards may be too high.
- Recent changes in your circumstances. If you have recently moved or changed jobs and have not notified all your creditors, the landlord or rental agent won’t be able to verify the information you provide.
- You have an unstable work record. If you have been job-hopping and have had periods of unemployment, you may have difficulty getting approval.
Action plan
Check for inaccuracies on the credit report. Incorrect information can be disputed and removed, which will boost your credit score.
Pay down debt overall. Getting a more favourable debt-to-limit ratio is a great way to get a better credit record while also getting rid of the debt that caused the problem. It can also help you get into better financial shape in general.
Pay off any defaulted debt. Paying it off may temporarily worsen your credit score but will prevent more adverse information on your record. In some cases, defaulting on a loan can still harm a credit report – even after bankruptcy. This can happen with debts such as student loans and child support. So, if you default, it is still best to pay off the debt, even if you are late.
Do not take out several small-limit credit cards. More credit cards on your name can give you a slightly higher credit score, along with a higher debt-to-limit ratio. However, this only applies if you can cope with the new debt, which you probably cannot at present.
External help. Talk to a financial adviser who will be able to offer guidelines for getting your finances back on track.
Going under debt review will negatively affect your credit profile. It will reduce your score with the credit bureaus. Also, you may not legally take on any new debt while under review, so this step should only be considered as a last resort.
Clear picture
The first step in returning your credit record to a healthy state is checking your credit score. You can do this by visiting the website of any of the credit bureaus operating in South Africa for a free full credit report. On your report, you can find your account payment history, balance and instalments, as well as adverse credit information.
This will give you a clear picture of your credit position, highlighting which areas you need to work on to regain a good credit record.
Writer: Sarah-Jane Meyer