Most landlords run credit checks. If your credit is bad or you have none, you will have a very difficult time trying to obtain housing. Therefore, it is extremely important that you take advantage of the opportunity to build your credit. One of the safest ways to do that is with a secured credit card.
Secured credit cards operate like a regular credit card. The big difference is that normally the bank that issues a credit card lends you their money when you charge an expense to it. With a secured credit card, you give the bank a security deposit–it can be as little as $250–and they give you a card that has a limit equal to the amount of your deposit. In essence, you are borrowing from yourself. The deposit eliminates the risk to the bank of someone failing to pay, and the low borrowing limit based on your deposit also will help you avoid getting back into serious debt.
It is important to note that you can still be denied for a secured credit card. While most banks will work with you, it will depend on your circumstances. A recent bankruptcy filing will cause some banks to wait for 6-twelve months after you have received your discharge to approve you. There are many banks that issue secured credit cards, and it would be wise to ask questions if you fall into the category of applicants with a recent bankruptcy. If you are in a Chapter 13 repayment plan, it is unlikely that any financial institution will allow you to receive a secured credit card since you are not allowed to incur new debt during the repayment period.
Once you obtain a card, the payment history is reported to the credit bureaus and a positive history will help improve your credit score and thus your chances when applying for housing. Prepaid credit cards like those offered at stores do not report to the credit bureaus. Debit cards don’t either. If the deposit will be a challenge, remember that you can borrow the money back with your new card and pay it back.
Many banks offer secured credit cards, and most also accept applications by phone, online or mail. Three banks in the District that might be worth talking to are Bank of America (5 locations in the District), US Bank and Wells Fargo. It would be best to visit a branch of one of those banks and sit down with a banker. They can take the application there (have your money with you). You will need to have a driver’s license or Identification card and to provide an address and phone number.
If you are presently residing in a shelter or outside, you will need to use a physical address. If you don’t have a family or friend that will allow you to receive mail at their address, try renting a mailbox at a location like the UPS Store or Mailboxes Etc. Most banks will not allow you to use a P.O. Box. Some service providers also allow you to use their address to receive mail. Be sure to use your cell phone number instead of the shelter’s. You will also need to provide information about your income. If you are working in an independent contractor, for example as a Street Sense vendor, the company can verify your status and provide basic information on your earnings. While it is true that the most important thing to the bank is the deposit, the Patriot Act requires all the information I have described to be provided to the banks when you open an account.
When you have had a secured credit card for a certain period of time–often one year–and have made consistent on-time payments, the banks usually return your money (along with interest earned) and the card becomes a standard, unsecured card.
This may seem like a lot of hassle to go through, but building your credit so you can get housing is very important. The District’s housing market is very competitive, and plenty of the competition already has good credit. By getting a secured credit card and making consistent, timely payments to build your credit score, you will be putting yourself on a path to look like a very desirable tenant on housing applications.
In the next issue, I will focus on another issue that may prevent people from getting housing: rental application background checks.
