How to Handle Applicants with Low (or No) Credit

As a landlord, it is your priority to protect both yourself and your property when choosing to rent it out. Performing thorough background checks is one way to help pinpoint a highly qualified applicant. But what happens if you find that your prospective tenant has low or no credit?

Thankfully, here at Apartment List, we want to help by making sure all of your bases are covered. In this article, we will walk through how to handle applicants with low or no credit.

How to Handle Applicants with Low (or No) Credit

Before we detail what to do in these situations, it’s essential to know why a credit score is a valuable piece of information in the first place. While a credit score will not tell you for sure whether an individual is financially responsible or not, it will help to give you a better idea.

Credit scores provide insight into an applicant’s financial situation, showing their current debt, credit cards, and ability to pay bills on time. Depending on how deeply you search into credit scores, you can find a lot of valuable information.

However, if you find an applicant that seems to be a good fit in all aspects aside from their credit score, you might reconsider. There are ways to help mitigate some risks in renting your property to a tenant with bad credit history.

Here’s how to handle applicants with low (or no) credit:

1. Discuss the Issue

First and foremost, opening up a conversation with the prospective tenant about any concerns you may have about their credit history can help. The truth is that even the best renters can make mistakes that can negatively impact their credit scores for a significant amount of time.

It’s always a good idea to discuss any issues with the applicant directly. In conversation, you may be able to figure out why they have credit issues. You can try your best to determine if the problems are red flags or one-offs.

In some circumstances, the applicant may be able to provide you with a perfectly reasonable explanation. Maybe certain debts have been paid off or they have plans to pay them off in the near future.

Bad credit isn’t the only obstacle you may face when screening applicants. You might find that they have no credit or rental history whatsoever. Young people renting for the first time might not have credit. That doesn’t necessarily mean they will be bad renters.

Think of alternative options for people with bad or no credit if you feel like they are a good fit otherwise.

2. Ask Applicant for Proof of Income

If you’ve come across an applicant with limited or no credit, you can try asking for proof of income as an alternative. Seeing a history of steady income from employers can help to relieve credit issues.

It’s normal to request two previous pay stubs as proof of income. But, for those with credit issues, you might want to see a longer history of pay stubs or bank statements proving they’ve had a steady job to help indicate their current financial stability.

3. Request and Check References

References are always critical in performing thorough background checks for applicants but are especially helpful when credit is in question. Reach out to previous landlords to see how the tenant was before and check that they were making on-time payments.

If you hear from a previous landlord that the tenant didn't miss payments, wasn't late, and was an all-around great tenant, it can alleviate credit report concerns.

4. Analyze Applicant's Background Check

Should any red flags come up in an applicant’s credit check, such as limited credit or a bad credit score, it’s a sign that you need to go back and take a closer look at the background check. Check for any glaring issues that could be leading to credit issues. You’ll want to be sure to keep an eye out for any evictions.

Another way to help minimize risk for a renter with questionable credit is to request proof of rent payments from the past. Showing copies of receipts or bank statements showing rent withdrawals can provide proof that they have a good track record with making on-time payments.

5. Request a Higher Security Deposit

A common tactic for higher-risk tenants is to ask them to pay a higher security deposit. Some even ask for the first and last month’s rent upfront in addition to a higher security deposit, just to help minimize some of the threats.

Keep in mind that there are some legal restrictions in different states as to how much you can charge for a deposit, so make sure you find that out before asking for a certain amount.

6. Require a Co-signer or Lease Guarantor

Requiring a co-signer or lease guarantor can also help alleviate any concern with a tenant who has minimal or no credit to prove their financial stability. Either of these will accept financial responsibility in the event the tenant is unable to make payments or cover charges for damages.

A cosigner does not have to live in the property, though is still considered a tenant. As such, they will be responsible for payments if the tenant does not make them. Alternatively, a lease guarantor only becomes responsible financially once a landlord has exhausted all other options in collecting rent payments.

Cosigners are common with young people and college students who have limited credit. Often, they will have their parents cosign to help them get into a lease agreement.

7. Consider Offering a Short-Term Lease

Another option for applicants with questionable credit is offering a short-term lease. Insead of standard lease terms, usually 1-year or more, consider a 3-month or 6-month lease.

Shortening a lease term could help you cover your bases if you don't initially feel comfortable with the applicant. Then, when the time is right you can offer an extension of the lease if both parties are in agreement.

Final Thoughts: Should Landlords Rent to Tenants with Low (or No) Credit?

When deciding who to rent your property to, it's important to do your due diligence in finding the best renter. Sometimes, the best renters may come with limited or no credit, which could cloud your judgment on their credibility. Thankfully, there are options to help you consider these applicants if they check all of the other boxes.

If you’re ready to get the process started and find a tenant, it's time to get your property listed. Make sure you choose a platform you can trust to get the job done.

Your go-to for property listing needs should always be Apartment List. We'll deliver prospective tenants eager to rent your unit. We match prospects to your unit so you have a higher chance of signing a lease agreement FAST.

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List with us today!