Bad Credit Isn’t the End of Rental Potential
Just because a potential renter has bad credit is no indicator they’ll be a negative addition to a given rental property; it just may mean you’ve got to be a little bit more strategic about bringing them to the building. Here we’ll briefly explore several realities of poor credit, and solutions, so you can be sure you don’t turn away a solid renter.
Credit is No Indicator of Financial Stability
Credit scores reset after seven years without any changes to them. So say you went to college, got a loan, worked at a high-paying blue-collar job for a year or two, and paid it off. Then, with a little money in your pocket, you got a job elsewhere and lived your life. Maybe you decided to live in an RV, or maybe you sublet from someone. If you avoid any further loans for seven years, then credit companies would essentially erase your entire credit profile, no matter how good or bad it is.
In that situation, if you want to re-establish credit, you’d have to do something like get a loan and pay it off, or get a credit card and pay it off on time. But say you decided to apply for an apartment. Well, your credit score might come back bad or non-existent. If you’re a landlord, you need to know how to parse between those who have poor credit owing to poor choices with money, and those who have poor credit because they’re not the type to over-extend themselves by taking out loans for things they can’t afford.
There are “Workarounds”
Sometimes you’re renting units from a building that requires certain things to onboard renters. Well, you might just charge double the up-front deposit and rent if you’re not sure about someone’s credit. Plenty of workaround like this exists, and you need to inform yourself more effectively about the way in which you rent the property you own.
Reduce Move-in Costs
Something else you can do is make moving in easier for your renters. Usually, there’s the first month’s rent, the last month’s rent, and a deposit required upfront. If each of those is $500, that’s a $1,500 bill right out the gate. If you’re in a city like New York City, that cost could be as high as $9,000. You need to make it easier on potential renters if possible.
When you know the renter has low credit, you’ve got to prove to them and to you that they can handle the monthly rent, so you’re going to need them to pay more upfront. But you might sweeten the pot, as they say in poker, by giving them a freebie somewhere else. For example, the Texas apartments at UMoveFree site help renters get moved in more affordably.
If you’re in this region, one move might be getting your unit(s) listed on that site, so potential low credit renters know that, at minimum, they’re able to save money on the move. With apartments, moving in and out tends to be the most expensive aspect of the transition. If you can “lubricate” this transition, as it were, it’s good for all parties involved.
Contending With Low-Credit Renters
Reduce move-in costs if you can, which allows you to simultaneously charge more on the front end without scaring off prospective renters, assuring they’ll be reliable despite whatever the credit agencies say. Also, look into varying workarounds for renters with low credit, and remember: good or bad credit isn’t the only thing defining someone’s ability to manage money.