While every landlord dreams of having a tenant with great credit history and awesome references, there's a good chance that you find someone who's just starting out and doesn't have a strong credit background. Weak credit histories have become a fairly common phenomenon in recent times, with banks and lenders pushing out more loans than people can repay. Or perhaps your tenant is a student with a part-time job who doesn’t have a credit history -- yet. That doesn't mean you should completely write an applicant off. A weak credit history doesn’t mean that your tenant is going to default on payment. Everyone deserves to start somewhere, don't they? As a responsible landlord, here are some workarounds when your tenant applicant doesn't have a strong credit history.
Background checks are the most important part of the tenancy selection process, regardless of credit scores. And when a person has a weak credit history, it becomes supremely important to do a thorough background check to understand the situation fully. Why is the credit history bad? Is it because he lost a lot of money gambling and had to borrow? Or did he have to borrow money to aid his sick wife? The reasons behind a weak credit history can influence your decision dramatically. If there are genuinely good reasons, you can take a leap of faith and allow residence -- and thorough background checks will help you do just that.
Another important part of screening is to ask for multiple character references. So while you may ask tenants with good credit histories for one or two references, you can ask your poor-credit-history applicant for multiple references to strengthen her application. And don’t forget to call every reference to get a better idea of your potential tenant. Is she honest enough to trust despite her credit history? Does her story fall in line with what references say about her? Character references are excellent when it comes to setting good and bad applicants apart. The best references are previous landlords.
Ask for a Guarantor
If you have decided to rent to a tenant, despite bad credit history for reasons that are well established, you can add another layer of monetary protection for yourself by asking your tenant to get a guarantor for the rent. The guarantor will sign a guaranteed rental agreement, which means that they will pay the rent if your tenant can't. A guarantor with a clean history of credit will need to meet a set of requirements, but this is usually a great way to ensure that your rent is safe, and it is an opportunity to give your tenant a chance without putting your money at risk. Many tenants with poor credit histories may jump at this opportunity because they are unlikely to find homes elsewhere.
If your tenant has poor credit history, perhaps he’ll be up to doing some chores in exchange for a better rental deal -- and you’ll be able to get some maintenance work done without having to pay the professionals a fortune. For example, a qualified plumber tenant can help solve plumbing issues. Strike a deal to lower his rent. This way your tenant is comfortable paying you on time, and you have a plumber, electrician, or maintenance guy on retainer in case of any emergencies. This could save you hundreds of dollars in repair fees.
Remember that not every tenant with good credit history is a good tenant. Sometimes people with poor credit histories could be better tenants than you ever expected -- so don't rule them out.
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