Landlord’s Guide to Renting to Someone with Bad Credit

Considerations For Renting to a Tenant With Lousy Credit

Is it wise to rent to a tenant who has bad credit? Nobody ever said it would be easy to be a landlord. You have to take care of your property, find the best tenants to rent to, collect the rent from tenants that are occasionally dodging you, and keep the place in tip-top shape prior to a tenant taking possession.

Additionally, it’s often hard to find the best tenants when it comes time to rent one of your apartments. Regardless of whether you’re renting in all Dallas neighborhoods or another community in the United States, just know that finding the best tenant is never easy.

Believe it or not, if you live in a well-populated area, there’s often lots of competition as well. Your potential new tenants have lots of properties to look at. Plus, living in a well-populated area means you’ll also have plenty of applications to sift through.

In a perfect world, everyone would be the ideal tenant. But you know as well as we do that this is never going to happen. Instead, you’ll run into good people that would make excellent potential tenants, except they have bad credit. Everybody suffers from a tight financial situation from time to time, and it’s your job as a landlord to look at each tenant on a case-by-case basis.

With that said, you should never wholly dismiss a potential tenant just because they have bad credit. There are people who buy a home with bad credit and the same holds true with renting They may end up being an excellent tenant that you ignored because of something as silly as a low credit score.

As an alternative, use the tips and suggestions we share below to determine if a potential tenant is a good fit for you or not.

Renting to A Tenant With Bad CreditAsk Bad Credit Tenants Point Blank Why Their Credit Score Has Suffered

Before you dismiss anyone, you should talk to each potential tenant and ask them point-blank why they are struggling with their credit score. Sit down and have a conversation with this individual to see what caused the poor credit to begin with. Just like a lender will ask a borrower a ton of financial questions, you should do the same!

Believe it or not, this potential tenant may have gone through a rough financial patch that unfortunately ruined their credit score. They may have temporarily lost their job, and without employment, they couldn’t pay their bills for a short while. But now they may have an excellent job with great pay and the ability to comfortably afford to rent your apartment.

Or maybe they got into credit card trouble at some point earlier in their life. Even though their credit score is still low, they may have gotten into a crisis many years ago, and it might not be a problem for them any longer. It’s just a matter of time before the negative blemishes are removed from their credit reports.

Again, it’s always best to talk to a potential tenant and ask them about their bad credit before immediately dismissing them. They may have an incredibly valid reason why they ruined their credit score and why it’s not a problem any longer.

Keep in mind that while their financial history is essential, so is how they will take care of your property. How the treat you home will become vital when you eventually decide to sell. The last thing you’ll want is an uncooperative tenant or someone who trashes your place.

If you know your going to sell in the near future, it will be essential to discuss with the tenant you’ll be selling the property. Part of your negotiations with the tenant for accepting their credit history could be laying out how they will make selling easy when the time comes.

Learn About Their Past History as a Bad Credit Tenant

Just because a person has a bad credit score, it doesn’t mean they are going to end up being a bad tenant. They may have an excellent track record as a tenant, and you’d never know it based on their credit report.

Instead of turning a blind eye to this potential tenant, you should look into their history first. Contact their previous landlord or current landlord and ask about them. Find out if they paid their rent on time, kept their home neat and tidy, and any other pertinent questions you might have.

If you cannot get a hold of their current or previous landlord, you could always ask for rent receipts. These receipts will help you conclude whether or not they paid their rent on time. And if you see consistent and regular payments on the first of the month, you’ll know that they have been a good tenant in the past and will likely continue to be a good tenant in the future.

Ask Bad Credit Tenants If You Can Look at Their Bank Statements & Pay Stubs

Some landlords aren’t fond of asking for bank statements. They feel like it’s an invasion of privacy in certain situations. But nothing could be further from the truth. And if a tenant has a healthy bank account, they’ll have no problem showing you as proof that they can afford to easily pay to live in your apartment.

Verifying their financial situation is a great way to ensure that a bad credit tenant will still be able to pay their rent on time and with regularity. So do not hesitate to ask these people to show you their checking or savings accounts.

On the other hand, another great way to verify their ability to pay is to ask them for their most recent pay stubs. By looking at pay stubs, you’ll be able to check their income and determine if they’ll have no trouble paying your rent in full each month.

If you see that they make a healthy salary each week, you’ll feel much more comfortable renting to someone with bad credit. Even though they’ve made mistakes in the past, you’ll know that they can pay the rent every month, and you’ll feel much more comfortable renting to someone in an unfortunate credit situation.

Ask Bad Credit Tenants for a Bigger Security Deposit

If you’re concerned about reducing your risk when renting to bad credit tenants, you could always ask them to provide a bigger security deposit. Usually, a landlord would ask for one month’s rent as a security deposit. In this situation, you may want to ask for first, last, and an additional month just to feel safe and comfortable renting to this person.

If they agree, you’ll feel a lot more protected in case they suddenly stop paying their rent. Or, if they are late with rent payments, you could always use one of the security deposit payments instead of their regular monthly payment.

Most important of all, you should find out the security deposit limits in your particular area. If there is a specific limit in place, make sure you stick to this limit at all times. You do not want to unintentionally break the law because you’ll accidentally find yourself in a world of trouble in this situation.

On the other hand, some bad credit tenants are even willing to pay extra just to rent an apartment to them. So if you normally charge $1000 a month for the apartment, see if they’re willing to pay $1100 or $1200 a month instead. They may be eager to pay that much as long as you are willing to ignore their bad credit for the time being.

Bottom Line

The information shared today should help you determine whether or not to rent to a potentially bad credit tenant. Use this information as a guide to make your final determination on a case-by-case basis. You never know what kind of diamond in the rough, you might find just because you decided to give someone a chance by ignoring their bad credit.

Additional Helpful Real Estate Resources

  • Millennial home buying trends – do you know what it popular in real estate for first-time home buyers? Take a look and see what it hot when it comes to purchase trends among the younger generation of home buyers.
  • What to do when moving to a new home – see what things you should be doing when you move from one place to another. Use this handy checklist to stay on top of what’s most essential.

Use these resources to make excellent decisions when you will be buying or selling your next home.

Kyla Stewart

About the author: The above article on renting a house to a tenant with bad credit was written by Kyla Stewart. Kyla is an award-winning writer who discovered her passion for providing knowledge to readers worldwide on topics closest to her heart – real estate. Since her first high school award in Creative Writing, she continues to deliver awesome content through various niches touching the digital sphere.

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