Do you rent to people with bad credit?
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesHaving unit empty is better than having a poor tenant.
My units go down to c+ area, but it is a low vacancy area
No evictions, ever. I do not care about the reason.
Strong LL references. Paying rent on time does not suffice as a strong reference.
Credit score: this is hard because virtually always it is a multi adult tenant. If one has poor credit, but the other good credit then we can accept. Similar with a co-signer.
When things go wrong, there are only a couple things a LL has at their disposal to collect. The security deposit is easy, but you will be challenged in my market to get a tenant out in anywhere close to a month. The other is their credit. If they do not pay, impacting their credit score is the stick. It may not work in all cases, but I guarantee if they have a credit score worth preserving it will work more often than if their credit score is already poor.
I would lower rent before I would lower my tenant qualifications.
Good luck
17 Replies
- 2yAndrew FreedBusiness MemberInvestor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
@Mary Jay - People with an eviction are an automatic no in my book. Regarding not good credit, I usually request a co-signer and copies of their bank statements showing that they have sufficient reserves in case anything arises. If I see they have 4-6 months of rent in the bank and can obtain a co-signer, I will look past bad credit at times.
- 2yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
For a few of them I'd ask follow up questions-ie for the person who broke the lease and is moving-why are they moving? Sometimes people get a new job in another city and they have to move. Make sure the lease has a penalty for breaking the lease early.
Evictions are much harder, but when were they evicted? Was it 10 years ago when they were 19?
For the guy who quit his job to help his mom....does his partner have the income required to meet your criteria to rent? Not every couple has both people working.
- Attorney · Pensacola, FL · Member since 2023 · 178 posts · 106 votes2y
Low credit score is just one factor. Eviction and early termination history are big, big warning and for many managers, an automatic no. However, if the applicant only has a low credit score but more than sufficient income, rental history, steady employment, etc., you may consider conditionally approving with a higher security deposit (or alternatively, use an insurance policy - "fee in lieu of deposit"), first and last month's rent. Use good judgment and assess your risks. Best wishes.
- Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes2y
To me, low credit is not an automatic no but they really need to have a solid income and money in their bank account. Minimum of first, last and security to move in as well. Any recent eviction for me is a definite no. Even older evictions would still bother me but I might look passed it if all the other factors are great. A year ago, I rented out to an older guy with a low credit score who admitted getting into bad debt because of divorce and some health issues. I rented to him and have zero issues collecting rent. Overall, I would want at least a 650 credit score but there will be circumstances where I could accept less (not many though!)
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
I look at the whole person. Someone could have bad credit, but good landlord references, strong income or employment history, etc.
I score based on a variety of criteria, determine the level of risk, and then charge a higher deposit to offset that risk.
The DIY Landlord Book4.7248 Reviews - Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes2y
@Mary Jay, I'm more pragmatic than most. For me good credit is an easy yes, but bad credit may or may not be a no. It requires additional analysis and questions.
The typical example I see where I can accept a tenant with low scores is this. A younger tenant who has not used credit much. So, they have limited history. They also have 1-2 SMALL negative accounts on their record and likely are unrelated to credit accounts. For instance an unpaid cell phone bill. They may have switched companies and didn't pay the original provider.
When I see a credit history like this, I may ask some questions to gauge the applicants level of responsibility but I will consider accepting them because I deem that they don't have enough of a credit history for their score to be reflective of them as an applicant.
Another example is that I occasionally come across people with NO CREDIT SCORE at all. Again, I think of it the same way. I don't hold it against them. They have done nothing bad or wrong for me to dismiss them as an applicant.
Persistent late payments, credit accounts in collections, etc are what shows me they are not suitable applicants.
- Member since 2021 · 107 posts · 82 votes2y
Yes I accept poor/low credit if everything else checks out and they are current on all of their accounts right now. Thus far it seems to be working out fine.
- 2yAlan AsriantsBusiness MemberReal Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
The type of renters you were going to get is going to depend on your market in the current market conditions.
What type of area is this? If this is a class C neighborhood, then this seems somewhat normal.
What is the condition of the property? Poor condition of the property will also determine what kind of people it attracts.
How many rental options are there in your area? Is it saturated? Are there a lot of options to choose from? If so, are the other options better than yours?
Alan Asriants - New Century Real Estate 590 Reviews - 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Having unit empty is better than having a poor tenant.
My units go down to c+ area, but it is a low vacancy area
No evictions, ever. I do not care about the reason.
Strong LL references. Paying rent on time does not suffice as a strong reference.
Credit score: this is hard because virtually always it is a multi adult tenant. If one has poor credit, but the other good credit then we can accept. Similar with a co-signer.
When things go wrong, there are only a couple things a LL has at their disposal to collect. The security deposit is easy, but you will be challenged in my market to get a tenant out in anywhere close to a month. The other is their credit. If they do not pay, impacting their credit score is the stick. It may not work in all cases, but I guarantee if they have a credit score worth preserving it will work more often than if their credit score is already poor.
I would lower rent before I would lower my tenant qualifications.Good luck
- Rental Property Investor · Member since 2018 · 826 posts · 810 votes2y
@Mary Jay you’ve got all the good feedback that you need, so I’ll share a tactic that i use in todays market. I’m in same situation as you where I used to get top dollar B-class tenants and vacancies filled within a week. However, these past few months I’ve had slow showings and 30+ DOM to rent.
For my last two vacancies I dropped rent 10% below market. I’d rather get more applicants and choose better quality than deal with higher risk. I now see competitor listings at 60+ DOM, so their extra month vacancy already exceeds losses from lower rent…. and they’ll likely settle with a worse tenant.
Play chess, not checkers. Vacancy (either through longer DOM, unpaid rent or evictions) is your biggest enemy. Don’t anchor so much on maximizing rent price.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Let's frame this another way @Mary Jay:
Let's say you have 2 different applicants on property. The first has 745 score, makes about $60k yr. The second has 605 score and makes $50k yr. Are you feeling ones clearly better than other?
Ok, now add in the first one, with 745 score, has a current aggregate balance on the laundry list of consumer credit accounts of about $38k. And on top of that another $50k in student loans, and $20k auto loans.
And Mr 605 score, has a about $1,200 in total balances.
Now, who's looking more risky?
Fico is only a story of the past, it does not assure any certain future. It "can" indicate a certain financially disciplined person, but there is a reason DTI determines a mortgage and if it's good enough for the bank, well why wouldn't it be smart for the landlord too?
As for eviction, that is a hard pass, no exceptions, so what I am speaking about above is on people putting way too much faith in a 3 digit number vs looking at the details.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @James Hamling:
Let's frame this another way @Mary Jay:
Let's say you have 2 different applicants on property. The first has 745 score, makes about $60k yr. The second has 605 score and makes $50k yr. Are you feeling ones clearly better than other?
Ok, now add in the first one, with 745 score, has a current aggregate balance on the laundry list of consumer credit accounts of about $38k. And on top of that another $50k in student loans, and $20k auto loans.
And Mr 605 score, has a about $1,200 in total balances.
Now, who's looking more risky?
Fico is only a story of the past, it does not assure any certain future. It "can" indicate a certain financially disciplined person, but there is a reason DTI determines a mortgage and if it's good enough for the bank, well why wouldn't it be smart for the landlord too?
As for eviction, that is a hard pass, no exceptions, so what I am speaking about above is on people putting way too much faith in a 3 digit number vs looking at the details.
1) FICO is also used to determine a mortgage
2) FICO takes into account current debt levels. For most people high debt will eliminate a high credit score (wealthiest excluded).
3) FICO takes into account credit obligations that were not satisfied (I.e. are in default).
4) the entire purpose of FICO is to use an algorithm to determine likelihood that the person will pay future debt obligations.5) a good FICO provides the potential stick used to collect moneys owed. Someone with poor credit has nothing to lose by not paying money owed. The 745 person has his good credit to lose and their good credit is worth trying to keep.
I rent to Mr 745 every time. Mr 605 credit will not dive as much if he fails to pay you money owed as it is likely his score already reflects an occurrence or 2 of not paying his debts. One more should not be a surprise. With a 605 he is already not able to obtain optimal financing, easy rentals (at least in my market), etc. a little further ding to an already multi dented financial record is not very significant.
Best wishes
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Dan H.:
Quote from @James Hamling:
Let's frame this another way @Mary Jay:
Let's say you have 2 different applicants on property. The first has 745 score, makes about $60k yr. The second has 605 score and makes $50k yr. Are you feeling ones clearly better than other?
Ok, now add in the first one, with 745 score, has a current aggregate balance on the laundry list of consumer credit accounts of about $38k. And on top of that another $50k in student loans, and $20k auto loans.
And Mr 605 score, has a about $1,200 in total balances.
Now, who's looking more risky?
Fico is only a story of the past, it does not assure any certain future. It "can" indicate a certain financially disciplined person, but there is a reason DTI determines a mortgage and if it's good enough for the bank, well why wouldn't it be smart for the landlord too?
As for eviction, that is a hard pass, no exceptions, so what I am speaking about above is on people putting way too much faith in a 3 digit number vs looking at the details.
1) FICO is also used to determine a mortgage
2) FICO takes into account current debt levels. For most people high debt will eliminate a high credit score (wealthiest excluded).
3) FICO takes into account credit obligations that were not satisfied (I.e. are in default).
4) the entire purpose of FICO is to use an algorithm to determine likelihood that the person will pay future debt obligations.5) a good FICO provides the potential stick used to collect moneys owed. Someone with poor credit has nothing to lose by not paying money owed. The 745 person has his good credit to lose and their good credit is worth trying to keep.
I rent to Mr 745 every time. Mr 605 credit will not dive as much if he fails to pay you money owed as it is likely his score already reflects an occurrence or 2 of not paying his debts. One more should not be a surprise. With a 605 he is already not able to obtain optimal financing, easy rentals (at least in my market), etc. a little further ding to an already multi dented financial record is not very significant.
Best wishes
I see "Debt Bombs" all the time now, with good to really good FICO's so no, it's not accounting for it at all. Maybe it should be, but I am seeing it, at scale, NOT doing that.
Cash-is-King, is it not?
Ok, so if Cash-is-King, that means debt-is-the-devil is it not? Were talking about tenants here, consumer debt, non-asset secured debt.
Here is what I see a LOT of now. Person has a "great" income of near $10k per month. And a debt service of $6k per month.... After everything, there poor, no joke legit poor. Because yeah, they make a lot, but there spending is equally massive so NET, net is near to nothing monthly. So if/when anything changes on employment..... Oh-Nelly things will get real ugly real fast.
Hey @Carlos Ptriawan you wanna chime in on how "safe" those at these $10k, $15k, whatever incomes are? The person a few years into whatever tech job, going bonkers on a spending spree because they got $....
Then they get divorced, and want to rent a place from me, and I'm telling em there scary as hell HIGH risk, and they just don't get it, shake there head saying but, but, but they make a ton. yeah, they do, AND they have spent 3 tons. They carry a giant debt load and debt service, there income is HIGH RISK for compression and decline, so no, they scare me.
The auto mechanic, who's now getting divorced, wants to rent a place, had ok credit but nothing amazing and in divorce soon to be ex wife did spending spree so credit is tanked, I LOVE that tenant. Blue-Collar = $$$$ folks.
Mechanic, Electrician, Nurse, CNC Operator, these people are $$$$-Fountains!
Tech = possible train-wreck. That's just the reality. Especially the new-$ folks spending every cent as if there income is guaranteed for life.....
FICO does NOT tell you who is safe or risky in this FUTUREcast.
You have to use your head, do some thinking.
Now if there burger flipping doing nothing to improve themselves, well duh. Someone waiting tables while finishing nursing degree, and had some credit issues, YES, gimmie them, I will happily deal with them, those who give a shat about there lives and are clawing way up. Sure, there may be lates but they will always make things right.
- 2yJason H.Pro MemberRental Property Investor · Pittsburgh | Chicago · Member since 2016 · 115 posts · 54 votes
Quote from @Allan C.:
@Mary Jay you’ve got all the good feedback that you need, so I’ll share a tactic that i use in todays market. I’m in same situation as you where I used to get top dollar B-class tenants and vacancies filled within a week. However, these past few months I’ve had slow showings and 30+ DOM to rent.
For my last two vacancies I dropped rent 10% below market. I’d rather get more applicants and choose better quality than deal with higher risk. I now see competitor listings at 60+ DOM, so their extra month vacancy already exceeds losses from lower rent…. and they’ll likely settle with a worse tenant.
Play chess, not checkers. Vacancy (either through longer DOM, unpaid rent or evictions) is your biggest enemy. Don’t anchor so much on maximizing rent price.
I am in the same boat and completely agree with you in that the rental market does seem to be changing quite a bit in recent times- much more difficult to get good qualified tenants these days and decent tenants seem to have their pick of the litter - often very flaky and uncommitted because there is so much supply out there.
Rent price is definitely a key issue but what's the more likely outcome of a significant drop in rent price below market? - attracting the wrong type of tenants or actually capturing those with decent credit looking for a deal?
- FL · Member since 2024 · 7 posts · 2 votes2y
I have accepted lower credit scores than I would've liked in the past. Both cases were great tenants. I did verify certain things before agreeing, example a couple with low credit were recent immigrants to the country, no bad marks but still building up their credit. Had jobs and reserves in the bank. Prior tenant lost her job and all missed payments were during the same two months before she got on her feet. Spoke to prior landlord and he said she did pay him all rents, though late during that time, but she got back on track. I had a similar experience with tenants not showing up to view despite applications looking good, etc. If you are uncomfortable with the options you have I would wait for better options. Took me six weeks to rent a smaller unit at one point but its worth it for a great tenant who pays on time and has no complaints or issues.
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Without a doubt pricing a bit below top of market rents attracts better-qualified applicants. A third of our portfolio is affordable housing. We do not accept people with evictions, period. Even if they paid the eviction and it was dismissed we do not deal with anyone a prior landlord had to sue. Barred for life.
We start asking for near top-of-market rent and notice when we decrease rent 5-10% after the first week or two of marketing that magically the tenants with longer rental histories, no evictions and stable (but not necessarily lucrative) jobs start showing interest in the listing.
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