As a landlord, you might be confronted with situations where your applicant has no credit history. This is normally a problem, as a credit history can tell you whether an applicant has a history of making payments on time, previous issues with landlords and outstanding debts that they’ve failed to pay. However, the fact that an applicant has no credit history doesn’t necessarily mean they won’t make a great tenant for your property. Here is a guide offering 5 tips for what you should do when a tenant doesn’t have credit history.
1. Require a Guarantor or a Co-Signer
Usually, someone with no credit history is a college student or someone just out of school. The applicant could be a perfectly respectable and dependable tenant, but their lack of a credit history does represent a challenge to making a proper assessment of their worthiness as a tenant. It’s often an excellent idea to have a guarantor or a co-signer backup the applicant, such as a parent or someone who is willing to take on the financial responsibility.
With a guarantor or co-signer, if a tenant doesn’t pay, you know that someone will be responsible for ensuring you don’t lose money on a tenant gone bad. It’s important to remember that you should also run a thorough background check on anyone who is a guarantor or co-signor, as you also want to make sure they’re in a financial position to pay up should your tenant fail to do so.
2. Require a larger deposit
If you decide you want to accept a tenant with no credit history, you’re usually taking on a bit more risk. Don’t be afraid to let the applicant know that due to their lack of credit history, you will require a larger deposit than average. This could mean that you request several months of rent upfront on top of the standard deposit. This will help reduce your risk in the event that you end up with a tenant that can’t actually meet their rent obligations.
3. Examine their income
If you’re renting to a person with no credit history, you want to make sure they’re earning a decent salary. You'll want to be extra cautious that this particular applicant is earning more money at a stable job than the average tenant you’d take. Look for applicants that have a higher earnings to rent ratio than average.
4. Provide a tenant with an incentive to pay on time
If you want a little extra insurance regarding a tenant with no credit history, then consider providing them with an incentive to pay their rent on time. You can give the tenant a small discount on their rent each month if they pay within the first three days of each month. At the same time, you can also decide to make it very clear that there will be penalties for not paying in the first week of each month. It depends on how in-demand your property is and whether you’re struggling to fill it with tenants.
5. Reject the Applicant
Ultimately, rejecting an applicant sometimes makes perfect sense. If you have plenty of other quality applicants that do have excellent credit histories and meet all your other applicant criteria, there’s often little reason to take a tenant who has no credit history. If the tenant doesn’t have a credit history, and there are other red flags, like a conviction, it’s an especially good reason to minimize your risk and simply say no.
If you decide that you actually want a tenant with no credit history, it’s not a bad idea to use multiple strategies to minimize your risk. Ultimately, using these tips will put you in a much better position for dealing with tenants with no credit history.
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