Rental Property Investor · Pawtucket, RI · Member since 2018 · 38 posts · 12 votes
I am renting out a studio apartment, the majority of applicants don’t have credit at all. Would any of you landlords out there rent to people who don’t have credit at all? What else can I take into considerations beside credit scores? Any thoughts would greatly appreciated.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
Personally, I think FICO is a bunch of c*ap - a racket devised by banks to upcharge the unsophisticated. You can be worth 10 figures, have a massive stream of regular income and have a lousy credit score.
Look at current income, length of employment, personal references. Get a co-signer if you can. This will tell you what you really need to know.
Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
6y
It seems odd that no one has credit. By no credit do you truly mean no credit or is it bad. The only circumstance I see this as likely is if you are renting to college students which would be normal and you would just want to get their parents to co-sign assuming they have credit. Just remember whatever your original standards were you picked them for a reason. The only bigger killer to profit than an empty unit is an occupied one not paying and costing you money for an eviction and repairs. Stick to your standards and if it has been on the market for a while consider adjusting your price, a quality applicant isn’t going to overpay since they have the pick of what’s on the market.
Rental Property Investor · Pawtucket, RI · Member since 2018 · 38 posts · 12 votes
6y
@Adam Martin
Thank you for the input. Out the 10 applicants who were interested, 5 of them have bad credit and the other 5 no credit at all. With covid-19 going around, landlords can’t evict. I just don’t want to pick the wrong applicant. I will strongly take into considerations of your input. Thanks
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
Personally, I think FICO is a bunch of c*ap - a racket devised by banks to upcharge the unsophisticated. You can be worth 10 figures, have a massive stream of regular income and have a lousy credit score.
Look at current income, length of employment, personal references. Get a co-signer if you can. This will tell you what you really need to know.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y
@Pedro Jean@Adam Martin the other possibility for no credit is that they are foreign nationals or spent most of their life abroad, in this case a cosigner may not be possible or practical, so you should focus most heavily on their employment.
Rental Property Investor · Pawtucket, RI · Member since 2018 · 38 posts · 12 votes
6y
@Darius Ogloza
Thank you for the input. I was also thinking about applicants who don’t have good credit or credit at all, but who have good reserved funds or savings to weather the storm in case of a job lost.
Rental Property Investor · Pawtucket, RI · Member since 2018 · 38 posts · 12 votes
6y
@Bob Prisco
Here in Pawtucket RI, it’s tough to find applicants even with a 500 credit score.I read it’s illegal to charge first month’s rent, deposit and last over here in RI. Thanks
Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
6y
I don't even bother to check credit scores. Where I own few people use bank accounts, few have credit cards, few have loans of any kind. Yet, people pay their rent every month just the same - how about that? LOL.
One thing I consider about "credit" is this - is it more fiscally responsible to live using perpetual credit or is it more responsible to pay everything up-front with cash? That thought has always made me chuckle with people who heavily weigh a credit score - good credit is built by using credit. I'm not going to ding someone because their strategy is to never use credit. I happen to think people who believe paying for things on today's money instead of tommorrow's money are more fiscally responsible than those who rely on credit for everyday purchases.
What I am shifting to is 1st, last and damage up-front. I currently charge 1st and 1.5 damage. I think asking people to come up with that amount of money, and their ability/willingness to do so shows a) they can afford to do that and b) they see the fiscal wisdom in the practice - those are the renters I want.
In addition to asking 3x rent up-front, I am shifting to allow the deposit held for last month to be used as an emergency fund. While I expect tenants to be fiscally responsible and plan for unexpected expenses, I also recognize mistakes happen too. So, perhaps I will allow a draw on those funds say, 1 time a year? This use of deposit funds will of course have a repayment plan that must be met.
The other change I am making is returning the damage deposit within 2 business days from unit transfer instead of the default 21 days. This will of course have conditions, like a pre-move inspection and a subsequent post-move inspection. I think the default 21 day law is ridiculous and beyond unreasonable. There are few instances when a landlord ought not be able to assess damages and return money in a much shorter amount of time.
The reason I am choosing to make these changes is because the current practice of 1 month damage and zero last month and 21 day return of damage deposit just causes too many problems. When a tenant is worried they will not even receive their deposit back AND know it will not come until 21 days has elapsed, that places the tenant in a tough spot. This is why we so often see otherwise good tenants skip out on last months rent, which of course affects their reference rating and perhaps their public record too. It also drains the damage deposit. When the tenant knows the damage deposit is drained, their incentive to not damage the property on the way out decreases, added to the fact they have already skipped last months rent and screwed up their reference anyways!!! And of course, the lack of damage deposit funds is very bad for the landlord, which in-turn becomes bad for the neighborhood, as property is unnecessarily damaged and funds for repairs are no longer present.
Finally I only use month to month leases. I know some areas require long term leases - perhaps people (owners and renters) ought to fight to have that changed in those areas - it's a horrible law that serves nobody well.
This thread is about tenants with no credit. The presence of a good credit score is not something that equals a qualified tenant. That said, the presence of a bad credit score does indeed say something, so for that reason I understand why many landlords strictly use them to determine eligibility.
I check for unpaid judgement's and evictions. Those two things show if people are going to address their problems the right way and if they will make good if something goes wrong. Then I verify employment and past landlords. After that they need to come up with the money. Once I rent to someone I can easily send them packing if they prove an inability to afford the unit, an inability to preserve property, or an inability to refrain from infringing on the rights of others, which are my three and only three criteria for renting one of my units.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
6y
@Pedro Jean. I have had this for young applicants before. No credit cards, no loans, first time renters after living with mom and dad. The main thing is to just mitigate your risks and determine why they have no credit, and to verify income. A small chat can determine why they do not have a credit score. And you can ask for W-2's, last two years tax returns, and last three months bank statements. And call their employer! If they haven't rented anywhere before and their bank balance is consistently at or near Zero, then they are not a good applicant. If they refuse to give these items to you quickly, simply move on to the next applicant.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
6y
@Account Closed. I can see where your policy works for you. But I also 100% think checking for credit score says a lot about somebody. You don't check at all? What systems do you use to check for unpaid judgments and evictions? It does not include a credit check? Quite frankly, I flat out disagree with returning the damage deposit in 2 days. Unless you actually live at the unit, you cannot determine certain things within 2 days, even with a walk through. I have had many new tenants come back a week later, after living there, and tell me something was broke or damaged, and I simply missed it on a walk through. Also, how can you asses damages and fix everything within 48 hours, in order to determine what to charge the tenant?
I use 1 year leases. I don't think there should be any law that determines how long a lease should be. That's just another contract between buyer and seller. Let the parties decide.
Again, your system obviously works for you, which is great. I'm sure my system would not work for everybody as well.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
A bad credit score can mean that the person is smart. Say you open 10 0% balance transfer credit cards with $20,000 credit limits and 3% transfer fees. Say you max these out for $200,000. You use these funds as sources of investment capital. The interest is deductible as investment interest so you are really paying a fraction of 3% per year depending on your marginal tax rate. Say, you invest another $200,000 you keep in cash in the market at 6%. You have just successfully arbitraged yourself a 4.5% return. Because you have maximized your credit usage and have little or no availability, your credit score will be decimated.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
6y
If you are in an area with high immigrant population it's common to have no credit or even ss number. These are actually often excellent tenants. Just go off income and referances. If it's people who lived in US their whole life claiming have no credit then definitely hard pass.
In nice parts of Chicago we only rent to 680+ credit. I have clients in suburbs where 600+ and 2.5x income is best can get. Depends on area.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
6y
No credit score is better then a bad one (depending on what you consider bad and why it is bad). Keep in mind that someone young will have a bad score based on length of credit and small balance cards if they have any. If you are renting a room many may not have a credit score. First make sure the reason makes sense. Young, recent immigrant, etc. Then you have to get more info. Bank balances, taxes etc. verify employment.
Chandler, AZ · Member since 2020 · 295 posts · 272 votes
6y
Based on my experiences, I find the credit score to be an extremely accurate indicator of whether or not a tenant is likely to pay rent on time and cause other issues like smoking / damage to the property. My minimum score is in the low 600s. I'd consider each no credit situation individually, but no longer accept poor credit. Time after time, it was the tenants with poor credit that were headaches. The statement that poor credit is good due to leveraging credit for investments is something I’ve never seen in a tenant as a landlord. I’ll consider it if I ever come across it but I’m not expecting to encounter this. I rent in B+ neighborhoods. I have never encountered anything even close to 10 applicants where half have no credit and half have bad credit. If I did, it would mean I'm asking way too much for rent and I need to lower my rate.
If you have a nice place, consider adjusting your asking price. If I owed property in C / D or worse neighborhoods, I would expect worse credit, but I don't have experience with these locations.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
Odd to see no credit these days, but some people haven't taken out any debt and that's not necessarily a bad thing. Assuming they have a good job/rental history, I would ask for either a co-signer or first and last month's rent or extra deposit (while staying within your state's laws). It's not a reason to reject them though.
Real Estate Agent · St Louis · Member since 2020 · 4 posts · 3 votes
6y
Bad credit and stories as to why credit is bad I just don't buy into anymore. Stick to your protocol, don't get personal and just run it like a business. Each time over the past two decades that I rented to friends, family or made exceptions, it never worked out. I think some people will change, I am just not taking the chance anymore. I also recommend to go the extra mile to keep a good tenant. I will offer a one month rent credit for another year lease if a good tenant is thinking about leaving. It ends up to be far less then a vacant unit, and no worries about going through the process again. They love it.
Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
6y
@Pedro Jean I spent 31 years in the auto Industry and banks preferred bad credit over none at all. Frankly, I disagree. If you have proven yourself with poor credit, take a look at their past history in life. For example, I deal with a lot of college students and do my best to look at that picture, are they party types or serious students coming out of HS. Are they a grad student? Also are they responsible and have decent jobs and what is the debt ratio? Take a peek at their car as the mess inside with assuredly be what your unit looks like. Do they have a co signer? I think good credit is a key but having none based on their age maybe normal. If one is 50 and has no credit that is a flag for sure. Some people use fake identities or social security numbers. In the end, you have to follow the law, but if one does not fit your policies, there are ways to take a deeper dive to help find the right tenants. Best of luck!