Credit scores are often considered an important indicator of a tenant’s trustworthiness. But what happens when a rental applicant has a low credit score? This article discusses credit, low credit scores, and whether or not a landlord should rent to a tenant with poor credit.
Renting to tenants with poor credit scores is a difficult decision to make for many landlords. Some landlords outright refuse to rent to tenants with low credit scores, while others are more accepting of poor credit. The decision of whether or not to rent to tenants with low credit scores is entirely up to you, but there are a few factors that you should consider.
If an otherwise great applicant has poor credit, discuss this concern with them. You can ask questions, learn about their history, and understand the circumstances that led to the low credit score. With more information, you may be able to move forward with renting. Even if it doesn’t work out, the extra information can help you make a more informed decision about the applicant. As with any screening questions, be sure you are following a standardized process in accordance with your state’s screening laws when evaluating a potential tenant’s application.
What Causes a Low Credit Score?
Tenants may have poor credit for many reasons, often tied to a lack of credit history, maxed-out credit cards, or unpaid debt. This can be indicative of a young renter, someone who has never had sole responsibility for their finances before, or someone who has struggled financially. Sometimes debt isn’t the only cause of a low credit score, especially for young people renting for the first time.
If a tenant has poor credit without an explanation, indicating that it is a result of accruing debt and not paying it off regularly, it can be a sign of instability. This instability can have a variety of causes, but it often shows that they may not be trustworthy for consistent rent payments.
What to Look for in a Credit Report
Credit reports can show a lot of important information that can be useful for landlords, some of which can be positive and some negative. Each aspect of their credit report should be considered very carefully. You can see:
- Credit cards and loans
- Credit card use
- Debt payment history
- Loan defaults
- Bankruptcy
- Foreclosures and repossessions
All of these factors can be extremely useful as a landlord. Some factors, such as foreclosures and debt payment history, can be extremely important when deciding whether to rent to them. Be sure to look through all of these factors before determining whether or not a tenant’s credit report should be a mark in their favor or against them.
Learn more: What to Look for in a Tenant Credit Report – Video
Should I Rent to Tenants With Low Credit Scores?
Ultimately, whether or not you should rent to a tenant with poor credit isn’t as simple as you might think. The decision often depends on a variety of factors, as there are many ways a tenant can have a credit score drop.
The kind of debt that a tenant is in may impact your decision, as well as their age, life circumstances, and several other factors. A recently divorced tenant, for example, may have a low credit score due to the way divorce impacts credit scores. As such, poor credit should be a reason for investigation, but not necessarily a reason for rejection.
How to Rent to Someone With a Low Credit Score
If you are unsure about a prospective tenant’s credit, you can take a few easy steps to protect yourself while still offering the tenant the property. One option is to request that the renter have a guarantor, someone whose credit score is higher and who can be held responsible for the lease if the renter is not. You can also require proof of income from the renter, showing that they make enough money to pay you rent, even if their history isn’t great. Finally, you can set a higher security deposit if allowed by your state. This can serve to cover unpaid rent if the tenant fails to pay, which can help to protect you from financial losses associated with taking a chance on a potentially irresponsible tenant.
Final Thoughts
Credit is only part of the whole puzzle when it comes to deciding whether or not to rent to someone. It is important to consider, and you should know your minimum criteria and what you are willing to allow as a landlord, but it shouldn’t be the only factor. Ultimately, every case is different, so consider a prospective tenant’s credit history, current circumstances, and ability to be a responsible renter carefully before deciding whether to rent to them.
If you do rent to a responsible tenant with poor credit, you can easily help them improve their credit score with rent reporting features. This can help them build a solid credit history and a good foundation for their future.
