Everything seems good but their credit. Should I rent to them?

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Everything seems good but their credit. Should I rent to them?

Tim Ball
Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes

I am looking to put tenants into my first rental.  Exciting stuff.  I have two tenants who pass the sniff test with landlord references, solid job, etc.  One tenants credit is not that good due to being young and not really building credit until recently so not a lot of activity.  The other tenant credit is very poor.  I spoke to her and she seemed pretty honest as to why it was the way it was from, being young and making some dumb decisions, going on tour for the Army and letting bills lapse when she is gone like cable bill and stuff like that.  I asked her if she is taking steps to pay her debts down and she said she is working with a debt consolidation company to tackle it.  She really wants to buy a house one day and she understands she needs to get her debt under control.  

As landlords, I know the most important is that tenants pay in full and on time and it seems both tenants have done that through my research.  No criminal record or evictions.  They are willing to sign a 2 year lease.  I just wanted to know your thoughts.  Thanks for the help!

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Marcus Johnson
Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
10y
Credit score or credit report? I don't put much emphasis on the score because hat could mean the person loves to use credit a lot and borrows all the time and has a lot of available credit. I prefer to look at the credit report which actually shows their number of creditors they owe and if their payments have been on time.
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  • Robert White
    Investor · Endicott, NY · Member since 2015 · 34 posts · 36 votes
    10y

    Of the two, I would tend to go with the younger tenant with minimal credit history.  His worth just hasn't been proven yet.

    The other's has been, and it didn't turn out well.  The fact that they are working with a debt consolidation company doesn't help much in my mind.  They tend to promise to reduce a person's debt for a fee, rather than the person just taking on the responsibility and working through it herself.  

    Once someone falls into significant debt, it is tough to get out of it.  It sounds like the second prospect falls into that mold.  While I can't guarantee it, my guess is they will be a much bigger problem than the first one.

    2Reply
  • Byron Bohlsen
    Investor · Minneapolis, MN · Member since 2015 · 173 posts · 53 votes
    10y

    Hi Tim,

    Do you have a posted minimum requirements? If not I highly recommend doing so and sticking to them to help stay objective. 

    I'm sure Texas is landlord friendly but fair housing isn't something to take lightly. Everyone has their opinion on what is acceptable but personally I wouldn't be getting into personal conversations over why someone has bad credit and what they are doing about it etc.

    What about income levels and length of employment?  Bad credit is bad credit. 

    1Reply
  • Steven Chang
    Plano, TX · Member since 2016 · 26 posts · 9 votes
    10y

    You've elaborated much more on the older tenant, so it's hard to decide whether or not the younger one is good. I would lean towards younger if you were able to tell their finances were in order.

    My only concern with the older tenant is that her history shows she redlines her finances, and with the average person history shows more about someone than just their willingness to change (think about how many new years resolutions go undone).

    1Reply
  • Tim Ball
    OP
    Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes
    10y

    Thanks guys.  Im actually referring to both of them living there.  They are friends and have lived together for the past to addresses and their landlords checked out for references.  So thats good.

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  • Dan King
    Investor · Happy Valley, OR · Member since 2015 · 23 posts · 15 votes
    10y

    Congrats on your first rental!  You will learn much over the next year.  Smart for asking those experienced landlords as you maneuver.  Screen, screen, screen and don't ever compromise just to get the rent checks rolling in.  I have learned with over 10 years of landlording that it ALWAYS pays to wait until you find the right fit.  Concerning your situation, I would ask for a double security deposit to cover the credit scores and allow them a few months to pay it.  This provides extra protection for non-payment and potential damage. Personally, I never allow more than a 1 year lease up front because I may not like them and can get rid of them after one year for any reason.  If I like them after the first year lease I roll out the red carpet to get them to lock in for a 3-5 year lease.  Good luck!  

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  • Tim Ball
    OP
    Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes
    10y

    @Dan KingGreat advice.  Thank you! 

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  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    10y
    Credit score or credit report? I don't put much emphasis on the score because hat could mean the person loves to use credit a lot and borrows all the time and has a lot of available credit. I prefer to look at the credit report which actually shows their number of creditors they owe and if their payments have been on time.
    3Reply
  • Mike S.
    Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes
    10y

        I see you reporting on what has been told to you, but what does her credit history actually show?  

     You need to establish criteria that you will evaluate all tenants against.  Waiting to decide what that is after you have taken an application is a good way to get burned.  It also scares me that you are discussing debt issues with your applicant.  The fact that your doing this sound like you are making an emotional decision and not a rational one.  Her understanding about her debts and you being understanding are not screening criteria.

           I think you need to pass solely on the fact that you're in over your head and need to establish your screening requirements before you go any further.  I know you're anxious to get someone in your first rental, but it is better to go vacant than to place the wrong tenant.

    1Reply
  • Mersades Williams
    Houston, TX · Member since 2016 · 24 posts · 5 votes
    10y

    I believe they deserve a chance, I've been there before being young and having to learn from my mistakes. I would do it as long as the income is right and stable and she seems like she wants to improve , maybe a additional deposit 

    1Reply
  • Pam Storm
    Professional · Atlanta, GA · Member since 2015 · 63 posts · 30 votes
    10y

    First, congrats.  Second, paper your acceptance criteria before vetting applicants.  This will take the emotion out and make it a smoother process with peace of mind (and other benefits).  If you don't paper your acceptance criteria first, it's very tempting to help, bend, be swayed... by almost any applicant really.  You will get more applicants - back up, decide on your criteria, and rent to those who meet it.  

    2Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Marcus Johnson:

    Credit score or credit report? I don't put much emphasis on the score because hat could mean the person loves to use credit a lot and borrows all the time and has a lot of available credit. I prefer to look at the credit report which actually shows their number of creditors they owe and if their payments have been on time.

     I would SHORTEN the lease under these conditions, at lease to 6mo, maybe back to 3mo.  You want to be in control if there's future issues and to avoid a costly Unlawful Detainer action - - you can give a 30-quit and be done with it.

    I favor a full CR and look at the 30,60,90 lates and the collections - - want ZERO within the last 6 months.  As life gets messy, perfect credit is becoming more rare, so cherry picking applicants that are demonstrating positive changes can work out  for both of you.

    1Reply
  • Rick BassettBusiness Member
    Property Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes
    10y

    When faced with the  of dilemma of a risky tenant that I kinda like,  I generally offer them: 6 month lease max (renewable) if everything goes well and either 2 months sec deposit plus 1st month rent -or- 1 month sec deposit plus 1st and last rent. Generally it's the move-in money that makes the decision for you at that point. 

    Personally, I'm not about giving chances as another poster indicated. I'm about 3 things when it comes to my properties:

    1) Pay the rent on time every month (by the first)

    2) Not wrecking my property, treat it like a home and with respect

    3) No Meth Labs (really no drama of any type, especially police drama)

    Rick

    475-900-3100
    Bassett Property Management5109 Reviews
    WebsiteView Page
    1Reply
  • Tim Ball
    OP
    Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes
    10y

    Update:  Tenant wasn't very happy that they have to pay a double deposit and said they found another house that will accept them based on their good references.  I said, "Ok, go ahead and go with that house."  I will let another landlord take on that risk. I am going to take yalls  advice and be patient and not jump on the first living being that wants to occupy my house.  I know my house is solid and will rent.  Ill wait for the right one.  Thank you all for you input.

    2Reply
  • Rick BassettBusiness Member
    Property Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes
    10y

    Yep, wait for the right one. It's hard to describe how bad it feels when you pick the wrong one.

    Rick

    475-900-3100
    Bassett Property Management5109 Reviews
    WebsiteView Page
    1Reply
  • Wes Parkinson
    Real Estate Investor · Stockton, CA · Member since 2014 · 7 posts · 2 votes
    10y

    You made the right call.

    On my first rental, a duplex, I moved in a family with marginal credit, but glowing recommendations from their previous landlords.  Eventually, the other side of the duplex became available, and they had some folks that they knew who were looking.  Again, marginal credit, but great references. After move in, everyone stopped paying rent.  We got them out fairly quickly, for California, but realized that they had been using each other, and other friends and family, as "previous landlords".  Basically, they pull this stunt and stay in a place right up to edge of eviction, and then move out, so there is no eviction history.  It had never occurred to me to cross reference applications.  Unless I can verify the number of the previous landlord, I tend to discount the references.  Even if I do speak with a landlord, I keep in mind that they might give a positive reference to insure that their "headache" tenant moves out.  Their credit record is the best empirical barometer that I've got.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    10y

    In my lower-end areas where tenants don't have great credit scores, I just require 2 months' deposit to help offset the risk. Everyone told me no one could come up with that much money plus rent all at once, but guess what? I've done it too many times to listen to that nonsense!

    I'm not saying don't stick with your requirements. Just realize there are ways to help mitigate that risk if that's the tenant profile/demographics of the area. I have had tenants that weren't able to continue paying.. but never lost any money on an exit because of the larger security deposit..

    0Reply
  • Dan King
    Investor · Happy Valley, OR · Member since 2015 · 23 posts · 15 votes
    10y

    I agree.  I have been requiring 2 month's security deposit almost exclusively on all my properties and it's rare that someone cannot pay it - especially if I allow them to make a few payments on the second month.  When they agree to paying a larger security deposit it shows they have a stronger financial position (vs. living paycheck to paycheck) and it provides them extra motivation to take care of my property.  In the end it is a win-win situation.  

    0Reply
  • Scott Groves
    Investor · Austin, TX · Member since 2016 · 15 posts · 4 votes
    10y

    Choosing a good tenant begins and ends with screening. The interview about their past becomes meaningful only after 20-30 minutes. I takes that long for people to open up and tell you about the stupid stuff that they have done. The question is whether they are continuing to do the stupid stuff. Look to the credit report, not the credit score. How long ago did they have credit issues and to what extent were they. If there are one or two small credit issues such as being thirty days late and it occurred three or more years ago, that is fine. The report indicates that for the last three years they have changed their behavior. I have found that people who have small issues are not good savers. That means they will never save enough money to move onto something more expensive including buying a house. They stick around for a long time.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    I'm glad so many landlords are looking at the credit history as more relevant than the credit score. Keep it up!

    Wish we could do that. Can't tell you how many folks have been jammed up or had their purchases delayed by a month or more because I have to tell them how to game the FICO algorithm to accurately capture their creditworthiness. 

    0Reply
  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    10y

    Agree with waiting. Especially in the winter months, when the pool of potential clients is low and the vacancy tends to last longer than you want, it is very tempting to take the first person who "looks good". One of the things I do is give every potential resident a copy of the application process which outlines exactly what we use in our screening process.

    A few still set up appointments, but most who wouldn't qualify stop communicating as soon as they realize we actually do check these things.

    For those who do decide they'd like to look it over, it might actually take a little more effort to get them to sign the lease. Why? Because they are responsible and they can be more choosy about where they live. And they take this process seriously.

    I was very tempted over the last month to let the screening criteria slide because one unit stayed vacant. But I resisted and am glad I did. The folks moving in have great personalities, seem very responsible, and were able to exceed our criteria. It may not work out in the end, but at least I'm not going in with a hand tied behind my back.

    Wait for the qualified resident and don't deviate from your screening criteria.

    1Reply
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