Being a renter means having the flexibility to live your life how you wish while living in an awesome home. However, before going on your renting journey and getting the keys to your new place, you need to ask yourself the question: “will I pass credit checks”?
There’s nothing more disappointing than going on a viewing, falling in love with a place and having an offer accepted, only to fail the credit checks and miss out on your dream home. But worry not. If you’re unsure about passing credit checks and referencing, you’ve come to the right place.
In this article, we’ll guide you through the process so that you can be prepared for checks and references. Spend less time worrying about passing the checks and more time thinking about moving into your new home.
What are credit checks and referencing?
When renting a home, you need to go through various processes that determine if you’re going to be a suitable renter. Renters often need to earn 2.5 times the annual rent to qualify as eligible. To verify your details, you’ll need to go through referencing and credit checks.
These determine your eligibility to rent a property. The information — usually carried out by a referencing agency — provides the landlord with information about your credit history and current circumstances.
For renter referencing, you will need to provide:
- Address history
- Proof of employment
- Reference letters from previous landlords and employers
- Three month’s worth of bank statements
- Tax return if you’re self-employed
- Letter from accountants if self-employed
- Guarantor if required (more on that later)
The referencing company will also carry out a credit check. The check involves looking over your general financial behaviour by examining your credit report, though it won’t tell those checking how much money you earn.
Credit checks include:
- Your debt/credit ratio
- If you’ve missed any payments
- If you’ve had any county court judgments (CCJs)
- Public records, such as if you’re on the electoral register
- How long you’ve lived at previous addresses.
Your credit report then produces a score that shows how creditworthy you are. The higher the score, the lower the risk from the landlord’s perspective. So if you have a high score, it’s likely that you’ll have no problem passing the checks.
Preparing for credit checks and referencing
Getting everything together
Being prepared is the best way to pass credit checks. That means getting all the necessary information together and ready to go. You’ll need three month’s worth of bank statements, along with information about your previous living history and employment.
If you’re self-employed, you will need to provide a tax return, proof of income and a reference letter from your accountant. Reference letters are vital, as they provide character assessments. Whether you need one from your accountant, previous landlord or employer, make sure you’re ahead of the curve by contacting them early and letting them know they might need to provide a reference.
Do the maths
As we mentioned earlier, you need to earn 2.5 times the annual rent. That means to rent a property that costs £15,000 a year, the renters moving in should earn £37,500 combined. Whether you’re moving in by yourself or with other renters, work out that everyone makes enough to afford the rent and you can prove your income.
The key to acing credit checks and referencing is honesty. Unlike checks for loans, credit and mortgages, the decision to rent into a home isn’t based on a computer. In other words, “computer says no” won’t be something you necessarily need to worry about.
The final decision rests with the landlord, with the checks acting as an informational guide. For that reason, it’s vital that you’re honest about your circumstances from the get-go. If you find yourself with information that could reduce your chances of renting, let the landlord or letting agent know in advance.
They don’t need to know your entire life story, but details relating to your eligibility could prove vital. Things like bad credit or previous experiences with landlords that didn’t go well are “need to know” information for those carrying out the checks.
Being honest and transparent should put you in a more favourable position, as it will show you are trustworthy. The checks are going to reveal all away, so being honest might work in your favour. There’s always the option of a guarantor too!
Using a guarantor
Even if you fail the credit checks and referencing, all is not lost. Guarantors provide security when the person moving in might not have all the credentials to qualify as an eligible renter. You will probably have an idea about whether you’re going to pass credit checks, meaning you can prepare to find a guarantor.
Guarantors need to go through the referencing process just like the renter — bar providing previous landlord references. However, guarantors typically need to earn three times the amount of the annual rent, and they will be responsible for paying rent if you are unable to. They will also cover any damages that may occur in the property.
Passing credit checks
The process of renter referencing and credit checks doesn’t need to be daunting. If you have all your documents ready to go, it’s actually a fairly straightforward process. The checks can take anywhere between 24 hours and a week, and the landlord or letting agent will notify you once they’re in.
After passing, all you need to do is sign the AST and pay the first month’s rent. Then you’re ready to go and start your journey in your new home.