Should You Rent To Someone With Bad Credit?

It would be bad business to accept the first rental application every time without question. You’d be increasing the chance that you rent to someone with a problematic rental history. As you know, this is why resident screening is so important. And while resident screening programs can flag a variety of potential problems, an applicant with a low credit score might still be a great renter.

So when should you rent to someone with bad credit? The call is yours to make, but bad credit can still mean a great tenant. Here are some actions you can take to give low-credit applicants a second chance.

Do this first: Ask about their credit issues

If you tell an applicant that you noticed an issue in their credit history, they might have a reasonable explanation. There are life events that can cause people to take on unexpected debt or hurt their credit rating:

• Medical emergencies
• Layoffs and/or a struggling economy
• Being a victim of fraud or identity theft
• Old credit issues that have been resolved

The list goes on. It’s possible that other landlords in your area won’t rent to someone with bad credit. If you can talk through the issue and find out what happened (and whether the problem was resolved), you can better assess whether their low credit score is a dealbreaker.

Request proof of income (pay stubs)

Proof of a steady paycheck may be all you need to satisfy your concerns about renting to someone with bad credit. It could be that your prospect got a new job or promotion and can now afford a higher standard of living. That low credit score may be no longer be an issue for them in the real-world sense, even if it’s still there on paper.

Ask to contact their most recent previous landlord 

Resident screening software cuts out the time you have to spend making calls and screening applicants yourself. 

Of course, even if you have reliable resident screening software, it’s time well spent if you can knock out a quick phone call and get a great reference. Be sure to verify how much rent was at their last place. 

By the way, if you’re a Yardi Breeze or Yardi Breeze Premier user and don’t yet have screening, feel free to email us to learn about ScreeningWorks Pro, a fully integrated resident screening solution, or use the live chat feature.

But we’re not done yet! 

If an applicant with low credit is trying to make a big leap in monthly rent payments, you might need proof they can afford it — even with a solid reference. That’s where the next action on our list comes in.

Increase the security deposit

Need additional peace of mind before you rent to someone with bad credit? You might be able to increase the security deposit. Just know there are likely limits on this. For instance, let’s say you live in a state that won’t let you charge more than twice the rent for a security deposit. If you’ve already maxed out the legally allowable deposit, this method won’t work for you.

And remember, you must put the new, full amount of the security deposit in the lease. As with your standard deposit, any increased charge is always fully refundable (pending expenses and damages upon move-out). 

Ask them to find a cosigner/lease guarantor

Ideally, you’d have enough confidence in your signee to put them on a lease. However, if your applicant has a low credit score — or in some cases, no credit — you could allow them to find a cosigner. (Also called a lease guarantor.)

This is likely a last resort. Being a cosigner is a responsibility that some people don’t want, and if the guarantor changes their mind down the road, your resident may not be able to re-sign with you. On the other hand, this may be a preferred option for first-time renters with little or no credit history. Plus, after a year building up their credit, the resident may not need a guarantor once it’s time to renew the lease. 

Put your business first

This last one’s all about you! Whether or not you should you rent to someone with bad credit is a question for you and your owners. A low credit score could be a business risk, but it could also be a whole lot of nothing. Only try the ideas in this article if it feels appropriate to do so.

Disclaimer

This article is intended for informational purposes only and should not be treated as professional counsel. Consult with your attorney if you have any questions about specific renter cases.