rental applicants with bad credit -give them a chance to explain?

Question

I am managing our first property by myself for the first time.  I am doing it "by the book" - Brandon Turner's book.   Rent is $1500/month for this SFH.  I have two applicants (single mom and a couple) who seemed great and make plenty of money to meet our requirements but have a bad credit score.  I'm using rent prep; so, I don't get specifics.  Should I give them a chance to explain and possibly allow them to rent despite the bad credit?  Maybe I'm just getting eager to get somebody in there, but I have been surprised how many people have bad credit.  Also, before showing the home, I send them our minimum qualifying standards which details minimum credit score, responsible financial life, etc.  They still paid to put their application in and seem like they'd work out well.  Advice please.  Thanks!

Mike Cumbie · Answer

Hi @Deborah Repaskey

The best advice I can offer is to pick your standards and stick with them. Once you start on a "case by case" basis you open yourself up to a lot of problems. Especially in the Fair housing realm. What happens when a different couple has a credit score 5 points higher on a different property? What if one of them is a protected class? You could now find yourself explaining why you had one standard for applicant A and a different criteria for applicant B. So my advice would be either enforce the criteria or make a new criteria. But either way be consistent.

Good Luck!

Wade Sikkink · Answer

We don't even look at credit scores.  We verify their income to make sure they have 3x the rent and we ask for past landlord references.  As long as their past landlord references check out, then we're fine.  Credit scores can get mucked up for a variety of reasons.  As long as they have made a habit of prioritizing paying their rent, then we feel our risk is low.

Stephen White · Answer

@Deborah Repaskey you can order SmartMove from inside your RentPrep account to see full credit report details. Some landlords like the full credit and others don't (like @Wade Sikkink mentions), so we offer both options.

You can also call into the office and speak with a Screener who may be able to give more information on the report you ran. A lot of times some additional insight will help you understand the report you already have.

The reasons for a bad credit score can vary drastically. And there are certainly items that should be very concerning to you, and other things that may not be as concerning, like a lack of credit information on a younger applicant. So knowing those reasons will help give some perspective too.

Thomas S. · Answer

You need to get a full report on all applicants, the score alone is not enough.

My minimum requirement is 650, once I have seen the entire report I have rejected applicants above 650 due to the report details. Those applicants below 650 are rejected automatically regardless of the reasons.

If you have a minimum credit score requirement stick to it. If you do not there is no point in bothering to have defined standards. Either you have standards or you do not.

Jim Adrian · Answer

@Deborah Repaskey

I use tenantbackgroundsearch.com for my credit check and have been happy with it.   Most people are renting due to bad credit.  You really need to look at patterns within the credit report and not just a credit score or rating number.  Look for late payments, how often and how far out like 60 - 90 days.  Understand there debt outstanding.  If they have consolidated debt then you may not see there monthly payment for example.  Put your requirements right on the application.  Do you have your credit score requirement set too high? Ex: Asking for 700 when everyone is around 600  I have read a lot of people run around 600 range for their requirement.  Like @Rick S. said... see if you can add one services to get the info you need.  I would just pay for this myself since seeking additional info.   Whatever company you go with run a background check on yourself to test what info you will get and what process the tenant has to go thru.   I provide a copy of their report to anyone who goes through the application process. They paid for it.

Jeff Gates · Answer

If you have border line applicants, credit checks will just confirm that. There are methods to eliminate risks. Where you off load those risks on other companies.  Send me a personal message, I will explain.

Justin Fraser · Answer

I agree with others here, it really depends on the area. Where I invest, most tenant applicants have poor credit. But, I make sure to call (at least 2, if possible) previous landlords to better understand if they paid on time, why they moved out, etc.

Matt R. · Answer

Perhaps compare them to the tenant pool available. In my area, bad credit, or passed due stuff, missed payments etc, would not fly but some other areas things are much different I hear. Sometimes a larger deposit is one adjustment landlords will make as well. Good luck!

Andrew Holmes · Answer

@Deborah Repaskey

I agree with @Stephen White.

Any eviction related issues no way. Late pay can hurst as long as they pay. Some people love to pay late so that hurts their credit.

What you have to see if they are complete idiots or are just behind in paying.

Will Yee · Answer

We had a similar situation with our SFH. We did give them a chance to explain. We also looked at their employment income and it met our requirements.

One thing that we did do, and this was actually offered by the tenants before we asked, was have them provide a certain number of months of pre-paid rent. Whatever you need to feel comfortable with the increased risk. This pre-paid rent is for the last months, in this situation 3 months, of the lease. This is not an additional security deposit. That would involve other legal requirements (paying interest, etc).

rental applicants with bad credit -give them a chance to explain?

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