While a rental applicant without a credit history is a bit of a red flag, it doesn't have to be a slammed door. You'll just want to use a thorough screening approach. Once you review all of their information, interview them, and take certain precautions, you can determine whether a particular applicant is right for you even if lacking credit history.
Thoroughly Interview the Applicant
As a landlord, you’re allowed to ask questions related to an applicant’s ability to pay their rent. Questions about their financial history are completely acceptable. You can also ask how long a tenant plans to stay in your property and how long they’ve stayed in previous properties. You don’t want a tenant with no credit history to jump ship after just a few months.
While many students and recent grads don’t have a credit history, sometimes you also run into an older individual no credit history. Don’t immediately leap to conclusions. Some people are very smart with their money and have decided to live an all-cash lifestyle, and you could be missing out on a great tenant. Just be sure to ask why they don’t have a credit history, and determine whether their answers hold up.
Check Their Bank Statements
It’s perfectly legal to ask for a tenant’s bank statement. If a tenant with no credit history has very little money in their account, there’s a good chance you don’t want to take that tenant on. In other instances, a well-funded bank account might tip the balance in favor of a tenant with no credit history.
Review the statement to determine how much money they’re taking in each month and how much money they’re spending. You can do a pretty quick financial analysis to determine whether this particular applicant has the means to pay their rent.
In some states, such as California, it’s an applicant’s legal right to deny you access to their bank statement. However, this might just be the warning sign you need to pull the plug on that particular tenant.
Check Pay Stubs And Consider Going Beyond
You’ll want to request pay stubs from a prospective tenant to ensure they have a job that pays enough. Often it’s a good idea to not just look at the income-to-rent ratio, but also determine what kind of job they have. Have they been working there for a long time? Do they work for a large corporation, government entity, or hospital? Or do they work for a startup business that might go under next week? For a tenant without a credit history, you want someone who earns enough and also has a job that is generally considered stable.
You might also want to consider filing an IRS Form 4506-T, which allows access to the previous year’s W-2, 1040 or 1099 form. In some cases, applicants can fake a W-2 or pay stub, so taking this extra step can help protect you.
Ask For References
References aren’t always available from someone with no credit history -- yes, some of these individuals are young and your property might be their first rental. But many applicants without a credit history have rented an apartment or home before, especially while they were attending school. Unfortunately, many private landlords do not report credit histories to credit agencies since it costs money. Ask the applicant for a reference, and if they have one, ensure that it's positive.
Also consider asking for a job reference. Make sure that they provide a phone number for their boss, and check the company website to verify that it's an actual company number. You don’t want to end up calling a friend or family member posing as a boss to give a good reference!
Ultimately, as long as you’re thorough and cover all your bases, you should have a solid idea regarding whether an applicant without a credit history is the tenant for you.
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