Owning and renting out property can prove to be a lucrative and rewarding gig. Yet, it involves a lot of work, and ensuring that you lease to tenants who always pay their rent on time, is a priority.
As a landlord, you’ve got the flexibility to adapt your terms as you see fit. Treating tenants as individuals will, more often than not, count in your favor.
A person’s credit score is, in many cases, an excellent indication of whether the individual is a good or bad credit risk. Typically, scores between 300 and 629 are considered low, average ranges from 630 to 689, 690 to 719 are good, and anything above 720 is excellent.
However, resources from this Dallas apartments website indicates that your decision to rent a property to a potential tenant shouldn’t solely be based on credit score. It’s often wise to ignore this rating, especially under extenuating circumstances.
This mindset will give you a competitive advantage over big rental management firms and ensure your property is never vacant for long. Below are some tips to help minimize potential issues and ensure that you get paid when dealing with tenants with bad credit.
Insist on a Co-Signer
If you’re dealing with someone that has poor credit, one of your first options should be to insist that they get a co-signer. This individual agrees to make payments on the tenants’ behalf if they’re unable or unwilling to do so. Taking this route will guarantee you always get paid in full and on-time.
However, it’s vital to complete a credit check on the guarantor to ensure that they’re in solid financial standing and capable of making the payments should the tenant fail to do so.
Request Pay-Stubs or Proof of Income
If you’re considering renting to someone with a low credit score, it’s crucial to look at his or her income. Should the potential tenant have a reasonable salary or be working at the same job for more than a year, it’s probably fair to consider this individual. When investigating a person’s employment, you should:
- Ask for the last years pay stubs
- Confirm employment with the employer
- Verify position held
- Validate the likelihood of ongoing work relationship
Ask for a Larger Security Deposit
When it comes to potential tenants with a bad credit score, you can ask for a larger security deposit. If your standard request is one month’s rent, pushing it up to two or even three months is fair. Similarly, you may also consider charging a couple of months’ rent in advance. It’ll reduce your risk and guarantee your protection.
Alternatively, you can also charge them more rent monthly. This measure should protect you in case your tenant is incapable of paying in a given month. Yet, demanding too much can be deemed predatory and may deter people from renting from you.
Enquire as to Why the Potential Tenants Credit Score Is Bad
Some applicants may inform you that their credit score is low even before you’ve had the time to check. There are various reasons why potentially good tenants may have an inadequate rating. Use this opportunity to find out.
Many people may have a short sale or foreclosure on record. Others may have been victims of identity theft or don’t believe in debt. Additionally, credit reports aren’t free of fault and may have unreported errors. Among many other anomalies, these negatively affect credit scores and can easily explain someone’s low rating.
Consider Shortening the Lease Term
Another effective strategy when dealing with inferior credit tenants is to shorten the lease term. Consider adjusting the contract to one, three, or six months. It puts the power in your hands to close the tenancy period early should the individual default on the rent payments.
To Wrap Up
Rental applications are never easy to deal with, and although it’s wise to follow the industry-standard guidelines, it often counts in your favor to be flexible. By insisting on a co-signer or asking for a larger security deposit, you can protect yourself and ensure you get paid when dealing with bad credit tenants.