Finding and retaining quality tenants is the name of the game for landlords. Renting to the right people can provide peace of mind; however, on the other side of the equation having bad occupants will severely hamper your investment and cause a great deal of anxiety and stress. One issue that must be addressed with a potential renter is their credit. Here are 5 Ways to handle bad credit applicants.
1. Find Out the Whole Story - If a potential renter has a bad credit score, your first course of action should be to understand the reason for their low credit score. The easiest method to do this is simply ask the applicant. It could be that the applicant has a short sale or foreclosure on their record. Perhaps their start-up business failed. With the rampant issues of identity theft, it could be that this person was a victim in this regard. The point is that a bad credit score in and of itself shouldn't disqualify what could very well be a quality tenant.
2. Confirm Employment - If it turns out that there is a valid reason for the applicant's poor credit score, take a closer look at their income. If you can confirm that they have been on the same job for a year or more with an adequate income, overlooking their poor credit score may prove to be in your best interest. A good benchmark is for the person to spend a maximum of 30-35% of their income on housing.
3. Verify their Rental History - If a potential renter with less-than-stellar credit has a strong, documented rental history (no late payments or returned checks), this factor is probably of more importance than the credit issues.
4. Proof of Funds - Ask the tenant for their bank statements. A quick perusal will enable you to deduce whether the applicant has sufficient cash saved up to make rent.
5. Charge a Premium - If a person has bad credit, they end up paying higher interest rates on loans or credit cards. This concept is no different. If you usually charge the first month's rent plus deposit, require the applicant to pay two months plus deposit. This step protects all parties involved.
Although credit is a major determining factor when deciding on whether or not to approve a potential tenant, it would be unwise to allow that one factor to be the only factor. As the landlord, make sure to take the big picture into your analysis.