How to Take the Risk Out of Renting To Tenants with Low Credit Scores

Reduce the Risk of Renting to Tenants With Low Tenant Scores

When it comes to the tenant screening and placement process, a prospective tenant’s credit score plays an integral part in your final decision.

A low credit score often indicates that a tenant will not pay their rent on time, is irresponsible with money, and does not make a stable income.

All of this combined equates to a problem tenant that you will regret having placed in your York, PA rental property.

That said, there are times during screening that you may find the perfect tenant for your rental property that just happens to have a low credit score.

So, what do you do now?

 If you have a tenant with a bad credit score that is seemingly a good fit for your rental on all other accounts, keep reading to find out how you can minimize the risk of renting to them.

 

What Constitutes a Low Credit Score?

Before jumping into how to reduce the risk of leasing to a tenant with a low credit score, it is important to establish what is considered a low credit score.

Take a look at the general credit score ranges:

  • Excellent – 750 and above
  • Good – 700-749
  • Fair – 650-699
  • Poor 550-649
  • Bad – 550 and below

As you can see, in order for a potential tenant to have what is considered a low credit score, they would have to have a score of 650 or lower.

 

Lowering the Risk of Leasing to Tenants with Low Credit Scores

A high credit score typically means a prospective tenant will pay their monthly rent on time and care for your property the way you see fit.

However, that does not mean that someone with a slightly lower credit score cannot do the same.

But, before entrusting your York, PA rental to a tenant that has a low credit score, it is important you find ways to offset the risk that comes with leasing to someone with bad credit.

 

1. Require a Co-Signer

Require a Cosigner For Your Tenant With a Low Credit Score

There are a number of pros and cons to requiring a co-signer for your rental property.

And, while you may not always want to allow for a co-signer, when it comes to placing a tenant in your rental that has a low credit score, this is a viable option.

A co-signer signs your carefully drafted lease agreement stating that in the case your tenant cannot fulfill their financial obligations and pay their rent on time, they will absorb the financial responsibility and make the payments.

Requiring a co-signer will help protect you and your investment property, and guarantee that you will receive your rent each month.

 

2. Ask for a Larger Deposit

York, PA has state-enacted legislation limiting the amount you can charge a new tenant when it comes to the security deposit.

In fact, you cannot charge a tenant more than two months’ rent.

However, this does not stop you from charging your tenant the maximum amount.

Plus, as a York, PA rental property owner, you can collect first and last month’s rent to make sure you have enough money from your tenant to offset the possibility they don’t pay their rent, damage the property, or incur additional expenses during their tenancy.

 

3. Require Automatic Payments

Tenant With Low Credit Scores Requires Auto Pay

Another great way to help ensure you receive your monthly rent payment from a tenant with a less than ideal credit score is to require automatic monthly rent payments.

This way your tenants pay their rent on time every month, before they have the chance to spend their income on other things.

 

4. Ask For an Explanation

No matter what your tenant’s credit score is, you should always entertain an explanation.

You never know, a prospective tenant may have a valid reason for having a low credit score that may not affect their ability to pay their monthly rent on time.

Take for example:

  • A past foreclosure or short sale that requires the tenant to lease a rental now
  • Identity theft that is in the process of being handled by the authorities
  • An emergency medical procedure that is being paid off each month

Lastly, there might be a chance that your potential tenant has no idea why their credit score is so low.

It may be something simple that they can resolve with the credit bureau, thus bumping their credit score up into a more appropriate range.

 

5. Verify Income

Verify Income of Tenant With Low Credit Score

Just because an interested tenant has a low credit score does not mean they do not have verifiable income proving their ability to pay the monthly rent rate you have in place for your York, PA rental property.

Tenant screening is a way to make sure your tenants can pay their rent on time.

By verifying their income through multiple pay stubs, you will easily be able to tell if they make enough money each month to cover the rent each month.

While this doesn’t show how much debt the tenant has and is responsible for each month, it does help create a bigger picture than what a 3-digit number does.

 

6. Check References

One of the last things you can do when you encounter a tenant with a low credit score is cross-check their references:

  • Employer. Verify employment by contacting the tenant’s employer. Ask them questions such as how long the tenant has been employed, what type of employee they are, and what position they hold in the company.
  • Previous Landlords. Reach out to previous landlords and find out if your interested tenant paid rent on time, damaged the property, or was evicted.

By speaking with your tenant’s references, you will be able to get a better idea what type of person they are, and whether they will be able to pay rent or not.

 

In Closing

The tenant screening process is in place for a reason – to protect you and your investment property. However, you have the flexibility to approve prospective tenants for your rental property even if they have a low credit score.

If you own rental property in York, PA and need help with the tenant screening process, contact York H-G Properties now. As the top York property management company, we can help you determine whether a tenant with a less than ideal credit score is still a good fit for your rental property.

In addition, we can help automate the rent collection process, inspect your property for damages throughout the tenancy, and initiate the eviction procedure right away, should your tenant end up being a problem.

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1 Comment

  1. This is some really good information about property management. It is good to know that a property manager will check the employment and see how long they have held the job. My parents are thinking about becoming landlords. So, this is a good thing for me to know.

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