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Updated over 5 years ago, 04/10/2019
Ask experience for bed credit applicants
(typo, I meant bad not bed credit... the system won't let me edit the title afterwards, :p )
Dear friends,
I have an applicant for my rental property. Everything seems ok. The applicant has a stable job (UPS for 27 years) income from 80-90k. The rent of my property is only $1050. He is divorced so will be him alone living in the property. Family is living in the neighborhood so he will be potentially long term tenant. The only concern I have is the bad credit; the story I was told is his ex-wife left his name on his old house after he left and let it slip into foreclosure subsequently ruining his credit. The house has since been sold and he has currently obtained a lawyer and credit support group to help him rebuild the credit. He will have his lawyer to submit a supporting letter for the rental application.
I am wondering do you guys
1. Won't take the applicant with bad credit no matter what
or
2. I am thinking to ask 2-month rent as deposit + co-signer who has good credit and willing pay the rent if he doesn't pay rent on time, as the condition to accept his application
Would like to know what you guys usually do, thanks a bunch!
Sincerely,
Ken
Originally posted by @Ken Wang:
(typo, I meant bad not bed credit... the system won't let me edit the title afterwards, :p )
Dear friends,
I have an applicant for my rental property. Everything seems ok. The applicant has a stable job (UPS for 27 years) income from 80-90k. The rent of my property is only $1050. He is divorced so will be him alone living in the property. Family is living in the neighborhood so he will be potentially long term tenant. The only concern I have is the bad credit; the story I was told is his ex-wife left his name on his old house after he left and let it slip into foreclosure subsequently ruining his credit. The house has since been sold and he has currently obtained a lawyer and credit support group to help him rebuild the credit. He will have his lawyer to submit a supporting letter for the rental application.
I am wondering do you guys
1. Won't take the applicant with bad credit no matter what
or
2. I am thinking to ask 2-month rent as deposit + co-signer who has good credit and willing pay the rent if he doesn't pay rent on time, as the condition to accept his application
Would like to know what you guys usually do, thanks a bunch!
Sincerely,
Ken
Ignore the score, look at the content. Why is his credit bad? Main things I look for are recent late payments on car loans, and collections relating to utility/cell phone bills. Those go in line priority-wise with the rent. I'd rather see a tenant not pay a credit card but pay me. You can easily see if the low score is due to financial difficulties years back and has since rebounded. Even more telling is if they weren't evicted during that time - IE they had a bad financial collapse but still made a way to get the rent paid.
Equally, medical bills are a common culprit that doesn't really reflect a persons willingness to pay their debts. However, look at how much bad debt they have as well. If they owe $20k+ in collections, there is a good possibility they'll file a bankruptcy and you'll be screwed.
@Matthew Olszak , thank you for the tip, very useful, I will follow.
@Ozzy Sirimsi, please see the post, what do you say?
I agree with @Matthew Olszak, depending on the location, it can be very common to see bad credit.
When you run the application, some are just bad at paying debt, and some are just having difficulty hear and there. Like Matthew said it is very common to see unpaid medical bills, or phone bills like $120, and they are not paying it for some reason.
Just look at the details, and make your decision accordingly.
- Ozzy Sirimsi
Thanks @Ozzy Sirimsi !!
#2 General Landlording & Rental Properties Contributor
I have a minimum credit score requirement and never make exceptions except for ...…….a single issue, such as in your situation, that is very unlikely to be repeated. Look through the report and see if he has defaulted on other payments or if he has maxed out his credit. What you want to see in a situation where someone has a single issue is whether it is reflect in anything else. If he pays all debts in 30 days and has not maxed out his credit he may be a good risk. If he is late on payments or has defaulted he is living beyond his means and you reject his application. Make sure you get the letter from his lawyer and only offer him a M2M lease if he otherwise passes.
Landlords that have a questionable applicant and decide to increase the deposits or require a co-signer to protect themselves should not be in the business. Applicants either pass on their own merit based on your screening standards or are rejected, anything else is a reckless and unnecessary risk (except student rentals).
Landlords do not mitigate risk in selecting applicants they mitigate risk by rejecting them.
Originally posted by @Thomas S.:
I have a minimum credit score requirement and never make exceptions except for ...…….a single issue, such as in your situation, that is very unlikely to be repeated.
Make sure you get the letter from his lawyer and only offer him a M2M lease if he otherwise passes.
Landlords that have a questionable applicant and decide to increase the deposits or require a co-signer to protect themselves should not be in the business. Applicants either pass on their own merit based on your screening standards or are rejected, anything else is a reckless and unnecessary risk (except student rentals).
Landlords do not mitigate risk in selecting applicants they mitigate risk by rejecting them.
Thanks Tom, I like the logic of your post. Very good suggestion, will follow!
@Ken Wang If he is an older gentleman he might have bad credit for a bunch of different reasons like he already paid off his house or something like that. A general rule of thumb is that landlords will look for credit scores of 620 or higher. The decision will also be in part due to what is reported on your credit score. For example, a landlord will look critically at a low credit score that is due to late payments, wage garnishments, or unpaid items!
I think your second solution is a better option if you have no other tenant applications coming in and you're wanting to fill your property soon. Don't let emotions get in the way of rejecting an application because when it comes down to it you want trustworthy and responsible tenants who will pay you on time! If you find another applicant that has a good screening report and credit report then I would personally go with them.
Best of luck!
@Ken Wang it really depends on the area. Is this a C class area? If it’s a C class area I’d probably rent to this person. Super stable employment. Good income.
As long as there’s no evictions or late bills or criminal record on his background check.
If this is a B/A area I’d just go with your minimum score and if they don’t meet it then don’t rent to him
@Taylor Roeling thank you so much for your kind suggestion. Very helpful, all due to curiosity, i checked average credit score is 670. I am wondering where the 620 metric comes out, isn't it a bit lower?
@Caleb Heimsoth , thank you so much. It's more like class B/c area and right close to Hopkins Bayview hospital. I got several requests but didn't find good tenant. I may be use too high credit score to screen (670)?
@Ken Wang 670 is a very good credit score and, as a landlord, you should feel very comfortable with a tenant who has that score. The reason why most landlords look between 600-650 is because most renters don't have a history of mortgage payments to boost their score. Anything below 620 would probably be very questionable. Hopefully, that makes sense!
#2 General Landlording & Rental Properties Contributor
I own B class properties and have a minimum score requirement of 650. Most of my applicants have scores considerably higher well in to the 700s. When screening for a B class property credit score is far more important than for a C class and should never be compromised. B class tenants are of a much higher quality and should be treated accordingly when screening. Any applicant with the income to qualify for a B property that has low credit is irresponsible financially and likely living beyond their means. They are not a tenant by choice and should be avoided. You want tenants with high scores that are tenants by choice, for example those saving to buy a home or those that prefer to rent.
Do not compromise when it comes to establishing high enough credit score requirements. It is a major indication of the financial responsibility of individuals. As a investors we all know the value of a high score and should never dismiss it when screening tenants. You pay your bills, all your bills, on time regardless or you suffer.
@Taylor Roeling thank you so much for your time to post the explanation. It helps a lot! Will start with 620 :)!
@Thomas S. thank you again for such good insight!! It's a very important aspect that you point out the " the weight of credit score requirements likely proportional to the income". Very happy to see your reply thanks a bunch!