Renting Basics - importance of credit history
Often the details you provide on the tenant application form just aren't sufficient for a landlord to make an informed decision. Thus, the reason for checking your credit history.
If you've ever had to apply for finance, you will be familiar with your credit report.
Lenders use your credit history to ascertain if you're trustworthy enough to consistently make repayments. Your credit report is essentially a map of your financial history.
There are many things that can cause blemishes on your report. Sometimes people may struggle with their bills, like internet, power and water. According to the 1988 Privacy Act, you will receive a negative mark on your credit report if your debt is over $150 and more than 90 days overdue.
Furthermore, every time that you apply for finance a stamp is left on your report. It is unfavourable if your history shows that you met with multiple lenders in a short time-period, as this generally suggests that you were repeatedly declined.
What does this have to do with renting?
Landlords like tenants who are clean: Clean house upkeep, clean manners and perhaps most importantly, clean credit. Just like an application for a home loan, landlords can request a copy of your report to study your credit history and determine your ability to pay rent. According to the Tenants Union of Victoria, agents or landlords can only have access to the second part of your report, which is known as Public Record Information.
This can include accounts of court judgements in relation to debt, bankruptcy and directorships. Unfortunately we are defined by our history, therefore landlords may be reluctant to offer you residence if your report portrays you in a bad light.
What if you don't have any credit history?
Believe it or not, it is possible to have a report that is too clean, as the landlord will have nothing to base their decision off. This is common amongst people who are leaving home for the first time. Fresh out of school or university, these young renters often have never had to apply for finance of any kind before. In these circumstances, it can be difficult to prove yourself as a viable tenant.
Fortunately, this problem can be easily rectified. In place of a report, simply bring proof of income (a couple of pay slips) and a recent bank statement to show evidence of savings. Provided these documents prove that your income is steady and you have savings set aside, your landlord should be well and truly assured!
For landlords, an alternative to requesting credit reports is using a tenant database. These are privately operated (most often for profit) and their role is to collect, hold and give out information about tenants in Australia. The accounts they possess are completely separate from traditional credit reports, as they are for a distinct purpose - existing solely to evaluate a person's performance as a tenant.
The only people who will be on these records are those who are perceived as 'bad tenants'. The databases are made up of shared information from various subscribers, such as landlords and real estate agents. Reasons for you being on this collection can range from not paying rent on time to leaving the property in a mess.
Common reasons for being on a tenancy database include:
- Breaching the tenancy agreement
- Unable to make rent payments
- Owing an amount larger than the bond
- Damage to the property
- A history of terminated tenancies
Fortunately for renters, there are many conditions surrounding the submission of a person to a tenant database. These include the landlord giving you a notice of the information they intend to share in addition to 14 days for you to review the statement.