Dangers of renting to someone with poor credit?

Question

I'm considering renting a spot to an applicant with very poor credit. To offset the risk of the tenant potentially not paying rent I am considering a deposit that is more than 2X their monthly rent and only offering a month to month lease. In my state the eviction process is pretty quick should I need to use it. What else would you consider in a situation like this?

Anthony Wick · Answer

@Chris BinghamI don’t care how many good stories and reclamation projects that turned out great. Do not rent to somebody with bad credit. They didn’t get that bad credit because of bad luck. Don’t forget the #1 rule: Tenants Lie. Are you a business or a social worker? Time to decide.

Derek Carroll · Answer

@Chris BinghamMany times if renters had good credit they’d buy. Most people will pay rent before the credit cards, student loans, or cars. I look at length of employment, income relative to rent, length of last rental ect. I also charge a larger deposit and do month to month. Month to month doesn’t require eviction for nonpay and if you have two months deposit you’re generally in a decent position.

Marc Winter · Answer

Credit scores need to be drilled down into to make a proper evaluation. If the applicant had large hospital bills that went into collection or if they had a messy divorce (depending on the amount of time passed from that type of issue) it might not be so bad.However, if they are being dunned by electric, water, gas, phone or other utility or if they are late on their car payment or credit cards, and it's all recent, well, just say 'no.'With any tenant, good credit or no, make sure to inspect the unit on a regular basis. Letting them know you care will go a long way to keeping their tenant act together.

Alex Smith · Answer

Why is their credit score low, are you able to see that? Starting off month to month is a good idea, and also taking the higher deposit. I'm interested to see what other folks have to say. How long does the eviction process take in your state? Is this UT you're talking about?

Account Closed · Answer

What is very low credit? 400? 500? 600?Also I’d ANY if the credit issues due to anything regarding rent or living accommodations? That’s a red flag for me. I don’t care as much of a credit card or medicial bill from 5 years ago is charged off. I do care if they have a judgment in their credit for something about renting.

Account Closed · Answer

Curious what is your minimum credit score? I’ve always done whole person screening. If you looked at my credit I wonder if I’d pass screening sometimes. ;)

Joe Splitrock · Answer

Sounds like they have nothing to lose at this point. They can't pay their bills, can't pay rent without someone helping, can't hold a relationship together and can't hold a job. In my experience these red flags are also an indicator of how they will treat your property and how much they will respect you. So on top of not paying rent, they could trash your property and disrespect you. You know there is a good chance you will need to evict them, so given all this risk is it a good idea to rent to them?Is there something wrong with the property or some other reason you are getting desperate on this one?

Dan H. · Answer

Most of our units is in a B- to C area. Those units have a lower required credit score than the better location units. Also in the C area we may bend our lower number if for example there are multiple tenants that are close to the score that is a minimum. For the B- to C class it a single tenant we expect 650. In our Pt Loma units (B area but expensive) we expect 675. The 675 has not been a problem (It would be real easy for us to make this a required minimum), that is the type of tenant that looks at units with rents at those prices (starting a little above $3K). The 650 usually is not a problem, I suspect because we are upfront about running credit and criminal checks and charge for applying so those with poor credit do not apply. We have rented to multiple adults in the C area that did not have 650 credit score when a couple of the adults were fairly close. These units start at ~$1600 (2 BR, but nice for the area). I think if we tried to make 650 a requirement. we would have some units that would take longer to find tenants than what we desire so this truly is not required as long as we still feel the combined credit scores provide us the protection/leverage that we desire.

Anthony Wick · Answer

@Chris BinghamI’m very curious to know why you’re trying to talk yourself into renting to this person. Almost every time somebody comes on BP to ask if they should rent to this person, they already know the answer is NO. But you’re already preparing for the eviction before they sign a lease. Good luck. Come back in a few months and let us know if it worked out.

Dan H. · Answer

One of the few leverages a Landlord has that a tenant will not thrash a place is the hit to the credit. If they have a credit score that is already low that leverage is nonexistent. We do not rent to low credit scores and our RE is mostly in C areas. I do not care if it is because of divorce, medical bills, or whatever. This is because regardless of how it got low, the fact that it is low takes away my protection that come from knowing I can hurt their credit if justified. We would not rent to your potential tenant. We are not desperate for tenants. Our units usually rent in the first one hour open house and we have little turn over. Good luck