Renting with a Low Credit Score

When you seek a tenant, as a landlord, you probably want to locate the ideal candidate.  They should ideally pass a tenant screening, have a spotless rental history, stellar references, and a high credit score. What occurs, though, if a prospective tenant’s credit check is negative?

It’s not always a bad idea to rent to someone with poor credit. Poor credit scores that don’t reflect their current financial condition stifle many responsible and mature adults.  There are strategies that landlords can use to reduce the risk associated with renting to a tenant with a low credit score. You’ll learn all this and more in this guide:

Why Credit Scores Matter in Rental Applications?

While some renters believe that their credit score has no bearing on a rental application, it can play an important role in their lease approval. Although landlords prefer higher credit scores, a low score does not automatically preclude you from being approved for a rental home. After all, many landlords and property management organizations have their own set of standards and criteria for screening rental applications. However, the standards and influence of credit scores may differ based on the rental market or type of property you seek to rent.

A high credit score is beneficial in a number of ways. You might be able to negotiate better terms for your rental, for example. Tenants with great credit may be eligible for more favourable conditions or a reduction in the security deposit. Conversely, a lower credit score could lead to more expensive upfront fees or less advantageous terms. 

Bay Property Management Group Atlanta understands that there may be limited options in the rental market. In a competitive rental market, landlords can also give preference to candidates with higher credit scores. Therefore, having a high credit score can provide you with an advantage over other candidates with lower scores if numerous applications are vying for the same property.

Other Factors that Landlords Consider

• Income

Potential tenants who want to rent with bad credit are more likely to be less risky if they can provide evidence of a consistent source of income. A recent work stub, bank statement, or tax return showing they can afford the rent can be a more accurate representation of their current situation than a credit score that remains low because of things that happened years ago. Landlords often ask tenants to provide their employer as a reference on their application so that they can verify the accuracy of their income and work details. 

Direct deposits or postdated cheques are also accepted forms of rent payment if the applicant can provide proof of bank account availability in the form of bank statements.  With this strategy, your chances of getting paid each month in full and on schedule are increased.

• Rental History

In order to help landlords anticipate whether tenants will make their monthly payments on time, certain credit bureaus may include rental history in their reports. You can gain a greater understanding of the possible renter by looking at rental history, which can also reveal warning signs such as late or nonexistent rent payments. 

Your worries over their obligation as a tenant will be allayed if you can provide documentation of consistent, on-time monthly payments from a prior rental agreement.

• References

On a rental application, a credit reference is an individual or organization that can vouch for a tenant’s capacity to handle money and make on-time bill payments.  This individual provides the property management or landlord with further reassurance that the renter is trustworthy.  To learn more about the renter’s financial habits and accountability, landlords may request references in addition to the renter’s credit score or credit report.

In order to verify that they have previously paid rent, handled bills, or handled money responsibly, renters may be asked to provide the names and contact information of individuals, typically professionals. Renters can show landlords they are responsible through these first-hand accounts.

How Can Tenants Strengthen Their Rental Application?

• Show Proof of Steady Income

Show off your solid work and money as if you were walking the financial runway.  When applying for a rental unit, provide proof of income since landlords want to know that you can pay the rent.  This could entail presenting tax returns, current pay stubs, or even an employer letter attesting to your work and income. Many landlords may consider a steady salary to be more important than a shaky credit history.  

• Offer a Larger Security Deposit

Your potential landlord may be less willing to accept a tenant with a low credit score if you are willing to pay a larger security deposit. They’ll have the security deposit to cover any losses and lessen the damage if the agreement falls through because you don’t pay their rent or are evicted. When offering a security deposit, however, be sure to check your state’s rules, as certain states have limits on the amount that can be charged.

• Get a Guarantor

If the tenant is unable to fulfil their end of the bargain, such as paying the rent, a guarantor is a third party with good credit who agrees to assume the duties and obligations outlined in the lease. Because their personal credit score will suffer if they are unable to make the payments, the guarantor will have an interest in the deal. Parents are frequently a guarantor, although this isn’t always the case. 

You can feel more at ease with this method since your landlord will have another option to get your money.  It’s also a terrific approach to begin establishing a solid rental history.

Final Thoughts

When screening potential tenants for your rentals, it’s important to understand the influence of credit ratings.  It is possible to determine whether a potential tenant is financially responsible and usually pays their obligations on time by looking up their credit history. However, low credit ratings that don’t fairly reflect their current financial status constrain many responsible and mature adults. Good thing for landlords, there are many methods other than credit checks to select the ideal tenant. 

While selecting a renter may ultimately depend on intuition, the details above will help you be sure you took all reasonable precautions to reduce the dangers associated with renting to a person with a low credit score.