Can You Deny a Rental Applicant for Bad Credit?

Yes. Credit history is not a protected class under federal fair housing law, so you can deny an applicant, or approve them only with a cosigner, a larger deposit, or higher rent, because of their credit, subject to fair housing limits on discriminatory effects, required reasonable exceptions for disability-related needs, and state screening rules. If the decision is based even partly on a credit or tenant screening report, the Fair Credit Reporting Act (FCRA) requires you to give the applicant an adverse action notice. Some states limit credit-based decisions: California and Colorado restrict how you use credit for applicants with a housing voucher, and Colorado and Washington require a written denial that states your reasons.

When can you deny or add conditions because of credit?

The federal Fair Housing Act bars discrimination based on race, color, religion, sex, familial status, national origin, and disability. Credit is not on that list. Consistent criteria alone do not make a credit standard lawful: it can still unjustifiably exclude a protected group, and disability-related needs may require a reasonable exception. For consistent screening:

1. Write it down before you screen. For example: no unpaid balance owed to a former landlord in the last 3 years, no open collections over a set amount, and a minimum score if you use one.
2. Apply it consistently. Pull the same report for every adult applicant and use the same cutoffs, except where the law requires an exception. Waiving the standard for some applicants and not others can become evidence of unlawful discrimination in the application process.
3. Offer the same alternatives to everyone in the same position. If you approve one applicant with limited credit history with a cosigner, offer that option to the next one.

Conditional approval has its own limits. A larger deposit must stay under your state's cap. In California, a security deposit collected on or after July 1, 2024 is generally limited to one month's rent; a landlord who is an individual (or a limited liability company whose owners are all individuals) with no more than two rental properties and four units may collect two months' rent, except from a service member. Colorado caps deposits at two months' rent.

Credit is not the only factor. An applicant with weak credit but steady verified income and employment may still meet your standard if your written criteria let income or a cosigner offset credit.

What counts as adverse action?

The FTC lists these as adverse actions when they are based on a consumer report:

• Denying the application
• Requiring a cosigner
• Requiring a deposit that other applicants do not have to pay
• Requiring a larger deposit than other applicants pay
• Charging higher rent than other applicants pay

The notice is required even if the report played only a small part. The FTC's example is a landlord who denies an applicant for both insufficient income and a negative credit report: the notice is still required because the report was part of the reason. A tenant screening report, an eviction records search, or an employment verification from a consumer reporting agency such as The Work Number triggers the same rule as a credit report.

What must the adverse action notice say?

Under the FCRA's adverse action rule (15 U.S.C. 1681m(a)), your notice must include:

1. The action you took, such as denial or approval with a cosigner.
2. The name, address, and phone number of the consumer reporting agency that supplied the report (a toll-free number for a nationwide agency).
3. A statement that the agency did not make the decision and cannot explain why it was made.
4. The applicant's right to a free copy of the report from that agency if they ask within 60 days.
5. The applicant's right to dispute inaccurate or incomplete information with the agency.
6. Credit score details, if you used a score: the score, the range of possible scores, up to four key factors that hurt the score (plus the number of inquiries if that was also a key factor), the date the score was created, and who provided it. Your screening company's report usually lists these.

The FCRA allows oral, written, or electronic notice of the adverse action, but if a numerical credit score contributed to your decision, you must provide the score and accompanying disclosures in writing or electronically. The FTC recommends written notices as proof of compliance. Send it when you tell the applicant the decision, and keep a copy with the application file.

Sample wording for a denial:

We are unable to approve your application for 123 Main Street, Unit 2. Our decision was based in whole or in part on information in a consumer report from [agency name, address, phone]. [Agency] did not make this decision and cannot tell you why it was made. You have the right to a free copy of your report from [agency] if you request it within 60 days, and the right to dispute the accuracy or completeness of any information in it with [agency].

If the applicant disputes an item, the dispute goes to the reporting agency. You decide in your written policy whether you will reconsider an application when a corrected report comes back. See what a credit report includes for what each section of the report shows.

What state and local rules limit credit-based denials?

Cities and counties can add their own screening rules, so check your local fair housing ordinance before you set a credit cutoff. To order the report in the first place, see where to get an applicant's credit report, and for how credit fits with the rest of your screening, see what qualities make a good tenant.