What are the options of an owner?

On paper, your tenant looks great: they have a great rental history and sparkling recommendations. Unfortunately, they disclose to you up front (or admit when they fill out the paperwork) that they have bad credit. Should we turn away from this tenant? You may have had a hard time renting your property, or you may be on the fence about other tenants who have applied. Either way, it’s important to know your options when it comes to dealing with a good tenant with bad credit.

Start by checking references

If your tenant looks great on paper and just has a bad credit rating, check their references first. There are many factors that can lead to bad credit scores: unresolved debt, unexpected debt, or even a few years that were just plain harder than others. You can’t tell by just one credit score what put a potential tenant in bad financial shape. While you don’t want to ask these references what caused bad credit – that’s a question for your prospective tenant – you can ask them about the tenant’s liability and behavior in the past.

These simple questions can tell you a lot about what the tenant will be like when they stay in your property. When talking to references, ask:

• How often was the tenant late with their rent? A tenant who has never been late with their rent despite bad credit is a good sign. On the flip side, a tenant who was frequently late or not paying their rent every month might not be a smart risk.

• Did the tenant maintain the property well? Did they promptly notify previous owners if repairs were needed or if there was a problem? Did they do the basic maintenance themselves? Has the property been left in reasonable condition?

• How often did the tenant call for maintenance? Did they constantly have issues to deal with or were they fairly peaceful tenants who rarely raised issues?

• How did the tenant manage interactions with neighbors? Were they a good neighbor or did they frequently complain about them? It is especially important to ask this question if you are renting an apartment building or condo, where the new tenant will be in frequent contact with others in the building.

• In what condition did the tenant leave the property when they left? If a tenant left the property in good condition when they moved out, they were likely responsible for the property in some other way. On the other hand, if they choose to wreck the property before leaving, they are disrespecting their former owner – and they might well do the same to you when leaving.

A good tenant isn’t just about a high credit score. Asking these questions will give you a better idea of ​​the type of tenant you’re dealing with – and in some cases, this information can trump their credit rating.

Talk to the tenant

In addition to checking references, take the time to chat with the tenant. A tenant who is willing to tell you about their bad credit up front may also be willing to discuss what led to their financial situation. A past bankruptcy doesn’t necessarily mean a tenant isn’t making good financial choices now, but it can still leave a stain on their credit report. Taking the time to talk to the tenant can give you a better idea of ​​what put them in this position and what needs to be done to give you confidence that you are making the right decision to rent with them.

Bad Credit Offer Options

If you are considering renting from a tenant who has a bad credit rating, you may want to have options that will make you more comfortable and confident in your choice. Work with your tenant to decide which of these options will work best for both of you:

• Ask for a larger deposit. If a tenant’s credit check is bad, chances are tenants will expect to be asked to pay a larger down payment up front. Include in the contract that the money from this deposit can be used, at your discretion, to cover unpaid rent.

• Shape your rental agreement based on credit needs. You can for example opt for a monthly lease. You may prefer not to pay for electricity and water for a tenant who has a low credit rating, although these are usually included in the rent.

• Charge a higher rent. When you have a tenant with poor credit, you might want to charge them higher rent. You can simply increase the rent amount for that tenant or let them know that as their credit rating improves, you will bring the rent amount back to its original level.

• Create milestones for the tenant to achieve. If you’re worried about a bad credit score, think about what steps you would like them to take in order to prove they’re a responsible tenant and that you’ll get the funds you need on time each month. Over time, you will find that this helps build confidence in your tenant.

Before choosing a tenant for your property, you should always perform a credit check. Good credit can indicate a tenant who is in a better position to make sure their rent is paid on time each month, which will make it easier for you to manage your finances. On the other hand, good credit alone isn’t everything. If you have a great prospective tenant with poor credit, these options will make it easier for you to offer them a spot.

About Sally Dominguez

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