Every now and then, we come across a potential tenant with bad credit; you need to learn how to handle such applicants. As a San Fernando Valley landlord or property manager who cares about his business, one of the things to check when you are looking for new tenants is credit history. You need to ensure that a tenant can be able to pay your fees as quickly as possible. One of the ways to determine this is by taking a look at his credit history as well as employment status.
The credit history of a potential tenant can tell you many things about such a tenant. Often, a tenant with a low credit score is a person that doesn’t usually pay his bills on time. It could also mean that the application carries too much debt. If that is the case with one of your tenants, you may find it hard getting your rent from such a tenant.
A bad credit score is usually anything below 629. Most landlord and property managers in Los Angeles will automatically disqualify any tenant with bad credit. A credit scale is usually between 350 and 850. The score is ranked as below:
- 300-629: Bad credit
- 630-689: Average credit
- 690-719: Good credit
- 720- 850: Excellent credit
Given a choice, every landlord and property manager will only like to work with a tenant that has excellent credit. However, things don’t always work the way we want them. As a landlord or property manager, you can decide to waive your credit score benchmark in order to work with a certain tenant. When you have decided to do so, there are certain steps you need to take to minimize the risk involved in working with such tenant.
Some of the steps to take when working with a tenant with bad credit include:
- Ask the Reason for the Bad Score
Don’t make any assumptions yet. As a professional, you will need to hear your applicant’s side of the story. Instead of just dismissing them, ask them to explain the reason for the bad credit, this may have a foreclosure on his record that affected his credit score. The bad credit may also be caused by a business that went under and forced them to get into debt. In a similar way, he may just be a victim of identity theft.
Before making your decision, make sure you found out from your potential tenant the reason for the bad credit score.
- Ask the Tenant to Show His Pay Stubs
An applicant can still be able to pay his rent if he is receiving adequate monthly income. Before dismissing a tenant with bad credit score, ask him if he is employed and able to show his pay stubs for the past year to prove his income. He should be making enough money to be able to spend about 30 to 35% of his monthly income on rent.
You also need to call the employer to verify that the information submitted by the applicant is correct. Ask the employer how long the applicant has been working with him and how much he earns.
- Demand To See Proof of Funds
You may need to ask the tenant to give you his bank statement. A tenant’s bank statement can enable you to know if he can be able to pay your rent. By taking a look at his bank statement, you will be able to determine if he has enough money in reserves to pay your rent in the future. This is important when you are working with a tenant with bad credit.
- Tell Him To Get a Co-Signer
If you don’t trust that the applicant will be able to pay the rent, you can ask him to go get a co-signer. A co-signer is the person to legally held responsible for the rent in case the tenant defaults on his rent payment. Make sure you check the co-signers income statement and then have him sign your lease as well.
- Charge a Tenant With Bad Credit More
The odds of a tenant with bad credit defaulting on his rent is high, therefore, you should charge him more. In a situation where your normal rent is just the first-month rent and a security deposit, you can charge a tenant with bad credit two months’ rent plus security. This is to enable you to minimize the risk involved in working with such a tenant. A tenant who has been turned down repeatedly on account of his poor credit record will be grateful to pay your fees.