One thing you need to examine when screening potential tenants is their credit report. A credit report will give you an insightful history of just about everyone. But should the credit report be the only thing you consider? No. There are numerous other factors to consider as well like criminal history. But let’s take it one step further. What if an applicant has bad credit? Should that be an automatic case for rejection? I think again the answer is no.
There are certain situations where you may want to consider renting to someone with bad credit. For some landlords, their potential tenant base will determine if credit is an issue. Everyone belonging to certain tenant bases may have bad credit. Other potential tenants may have had their credit destroyed due to extenuating circumstances. Let’s look at some examples.
If your rental properties are in marginal neighborhoods, you may not be able to find any applicants with good credit. You may have to rent to people with bad or at least not so good credit.
So what to do if everyone has bad credit?
- Look to see that they are telling the truth. Any false statements on an application should be immediate grounds for non-acceptance.
- Look for a steady job history. Look for someone who stays employed. Hopefully at the same job.
- Look to see that they pay most of their bills. These tenants are likely living paycheck to paycheck and a bit beyond their means. So look to see if they pay most of their bills.
- Get good references from the two previous landlords. Did the tenant leave owning them any money?
- Look for a steady rental history. You do not want someone who moves every year. You want stability.
In other instances, someone’s credit may have been ruined because of forces beyond their control. Someone may have been through a nasty divorce or they may have been diagnosed with cancer or been in a terrible accident. These types of situations can easily drain all available funds and bankrupt a person.
So what do you look for if someone has had their credit destroyed?
- Again, look to see that they have told the truth. Your application should have questions about their credit, work, and criminal history. If they are upfront with you about what you will see and why, that should carry some weight.
- Look to see if the credit report supports the story you are being told. We once had a cancer survivor apply for one of our apartments and their credit was devastated from the medical bills. This person was honest about it and it was obvious from the report what had happened.
- Look to see that they are trying to get back on their feet. Are they trying to pay off the bad debt or the bills? Are they trying to get a fresh start? It will be obvious from the report.
- Check references. These references should confirm what you have been told and vouch for their character.
So there you go. Having bad credit may not necessarily be a show stopper. As an example, our former tenant who is a cancer survivor was one of our best tenants ever. There was never a missed payment and the property was kept in excellent condition.
You can of course try to reduce your risk a bit with bad credit tenants by asking for higher security deposits or increasing the rent a bit. Just be sure that you have everything spelled out on paper in your application review policies.
