Others envy you for getting passive income month after month, but they don’t realize the risks you are running. From dealing with applicants and collecting rent from tenants, you manage everything with your rental property including repairs and maintenance. Last thing you want is a bad quality tenant and therefore, you use tenant screening system. Here is what to do when you face applicants having poor credit.
Try to get down to the real reason behind poor credit
It is incorrect to jump to the conclusion that the applicant is untrustworthy just because he has a poor credit. You can easily lose out on a good quality tenant by thinking along these lines. A bad credit may be a result of identity theft, emergencies requiring lots of money, and sometimes errors in credit report. You can ask the reason behind poor credit directly or uncover it by running a background check of the applicant.
How has the applicant been as a tenant?
If you find the applicant straightforward and clean despite his poor credit, there is another check you need to carry out to be sure about his behavior as a tenant. Unearth the rental history of the applicant to know how well they have performed as a tenant in the past. How has been their behavior with their landlords and fellow tenants? How well they have taken care of the properties in which they have lived in the past? This is information that helps you in taking the right decision when you feel you should allow entry to an applicant with a poor credit score.
Does applicant earn enough to afford the rent?
If you think the applicant deserves a chance to live at your rental property despite poor credit score, you have another way of knowing whether you will get your monthly rent on time or not. You will doubt his trustworthiness when the fact is that he does not earn enough to afford your monthly rent. If you have a monthly rent of $1000, make sure that the applicant earns at least $3000 per month or higher. Whatever the rent, make sure monthly household income is at least 3 times more than the rent amount. Go through bank statement to have a clear idea of their monthly income. You will know whether he is likely to miss the rent payment date or not. If applicant earns handsomely, you can breathe easy as there is very little likelihood of rent not being paid on time.
Ask a bigger amount as security deposit
If you are not convinced by the pleas of the applicant because of poor credit score, you can still allow entry in your rental property. Well, make a hefty security deposit as the precondition and see how the applicant reacts to this condition. When you have 3-4 month’s rent handed over to you in advance, you enjoy lots of peace of mind even if the applicant has a poor credit score. If the applicant shows reluctance in paying a big security deposit in advance, you know that they are not a reliable person. You should also hike the monthly rent for an applicant who has poor credit and he should agree to this increase in the light of poor credit score.
Ask applicant to bring a co-signer
If you feel you cannot take the risk of allowing the applicant inside your property because of poor credit score, the best method to safeguard your investment is to ask him to bring a co-signer. This co-signer with a good credit becomes your guarantee of timely payment of rent.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
