Real Estate Blog

To Trust or Not to Trust: Poor Credit Scores

So you’ve gone through the applications, held all the interviews, and you think you’ve found the perfect tenant. The problem? They don’t have a solid credit history. Maybe they’re fresh out of college. Maybe they just haven’t built up enough of a financial history. You like them, but you don’t like their credit score.

There are a couple of alternative ways to make sure they’re reliable before you take that leap and have them sign the lease.

First: references, references, references. Definitely check out past employers as well as current employers. However, remember that legally employers are limited in what information they can share with you. So make sure that you branch out a little and ask for some character references as well. That doesn’t mean Mom or Dad, but it can mean coworkers, or teachers, or prominent members of the community who can vouch for the applicant’s reliability.

You’ll also want to check out past payment records. Utility payments or rent payments are a great way to verify that this potential tenant can keep up with regular financial obligations.

But the single most important way to make sure this applicant will be good for the rent, even without a credit history, is to verify current employment. The last thing you need is a brand new tenant with no form of income. To check this, you’ll want to ask for paystubs, tax forms like 1099s or W-2s, or bank statements. You might also put through a formal employment verification request.

At the end of the day, a solid fail-safe to protect your investment is to ask for a higher down payment. Before you do this, you should make sure to check local laws on rental fees. But in most cases, it’s reasonable to ask someone who might be having trouble finding housing with no credit score, to simply put down a little more money up front so that you can breathe more easily taking a chance on him or her.

Remember that even the best applicants can have a hiccup in their credit history. When you see a bad credit score, your instinct may be to crumble up the application and throw it in the trash. Do yourself a favor and hold back. Do a few of the steps above first and see what you find. Maybe this applicant struggled for a while, but they’ve bounced back. You don’t want to throw away the opportunity for a solid, loyal renter because of one bad number.