Low Credit Scores - Higher Security Deposits?

Question

I have a minimum credit score requirement of 650 of all applicants, 2.5x monthly rent in documented income and positive background checks. If they don't have this score do any of you charge a higher Security Deposit (paid up rent)? I did this for one of my tenants who was out of the country for years and had no credit history. I charged 1st month rent, 1 month security and 3 additional months of security(paid up rent). I tried this again and the prospective tenants declined.

Also, do ask for additional documentation for your decision process? In the last group of applicants I asked for bank statements and pay stubs.

Any thoughts are welcome. Trying to figure out a process for our applicants.

Also, do ask for additional documentation for your decision process?  In the last group of applicants I asked for bank statements and pay stubs.

Any thoughts are welcome.  Trying to figure out a process for our applicants.

Anna Sagatelova · Answer

In addition to limitations on maximum security deposit as @Ujwal Velagapudi mentioned, some states (including Ohio) require you to pay interest to your tenants if you collect SD greater than one month of rent. Be sure you fully understand all your obligations relating to the security deposit before you use it as a bargaining tool.

Ujwal Velagapudi · Answer

I think most states have limitations on how much SD you can ask for, so make sure you check for your state. I usually did 1x rent as SD, but would bump it to a max (state limit) of 1.5x if there were any red flags like lower income or credit. Then I just started being more firm in my requirements, if they don't meet the basic criteria, then it is simply a rejected applicant. I opted to wait it out a bit longer for an applicant that had met all the criteria I was looking for.

John Herte · Answer

Thank you.

Derek Harris · Answer

@John Herte, in the past, we've allowed people with lower than the minimum credit score either pay a higher security deposit or pay risk rent. It depends on what works best for them. This is done through our property manager. We also try to have someone else cosign for them on the lease.

Jeff Copeland · Answer

Yes. It is fairly common for higher risk to equal higher security deposit. Technically, this is called an Adverse Action, and requires giving the tenant an Adverse Action Notice (we are requiring a higher security deposit based on information obtained from Equifax (or whoever)...You are entitled to a copy of your credit report from them....etc. etc)

You just need to have clearly published tenant screening requirements, and apply them consistently and fairly.

There are some great tips at  https://evict.com/common-applicant-screening-mistakes

Low Credit Scores - Higher Security Deposits?

Most Popular Reply