A new job won’t neutralize bad credit

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Dear Debt Adviser,
For the past three years, I have been living with friends and with my married brother in San Diego due to the mortgage industry downsizing, layoffs and recession. As a result, my credit report has taken a beating. Now, I am back to work with two jobs, and I am looking to move into a rental house. I am paying off my debt, but there are paid collections and unpaid collections on my credit reports. What can I do to increase my chances of the property management companies accepting my background check and of securing a house to rent? Please advise.
— Jacqui

Dear Jacqui,
Sometimes optimism can work against you. In your case, it sounds as though you didn’t cut your expenses fast enough to keep from accumulating some serious debt while you were unemployed. It’s easy to tell yourself that debt incurred while looking for a job is an investment in your future, and it is. But every investment has a downside and this one’s is that the investment failed to produce a job, or the job materialized later than you needed it to.

So, now that your ship has come in, it may sink your rental hopes. The solution to your dilemma is communication. You will need to communicate convincingly with the property management company or landlord and explain your situation. Tell the person you contact that you are working two jobs (pay stubs make you more convincing), are committed to resolving your financial issues and are willing to do your part to get into a rental.

You have several things working in your favor, not the least of which is the housing situation in San Diego. The San Diego Union Tribune reported recently that housing prices are still falling, albeit at a slower rate, in San Diego. Many people who own homes in San Diego that were purchased investments would likely love the opportunity to increase their cash flow with a renter. Likewise, persons who need to sell their homes may be willing to allow you a lease-to-own deal if that is something you want and can afford.

The flip side is you have a spotty credit record, and you have a new job that may not be stable. Be sure to be ready to address both of these points before you are asked. Bringing up the topic puts you in control of the conversation and makes sure the questions get addressed before they become an unresolved issue later on.

You can further increase your chances of successfully leasing a home with your less than stellar credit by following the tips below:

  • Make certain that the home you are interested in leasing is well within your means to pay the monthly rent. A good rule of thumb is that you earn at least two and a half times as much as the monthly rental amount.
  • If possible, secure letters of recommendation from previous landlords or employers, and bring them with you when visiting property managers.
  • Be prepared to pay a larger security deposit or pay two months in advance rather than one for the first lease term. After that, have them agree to refund the extra once you prove yourself. After all, you need the money!
  • Consider using PRBC. Originally called Pay Rent, Build Credit, this is a new type of consumer reporting agency that allows you to add nontraditional information to your file. They verify the information like old electric bills or cable bills for a small fee, and then you can allow others to access it to supplement your regular credit report. You can get more information at PRBC.com.

Keep up the good work paying off your unpaid collections.

Good luck!