What Does Bad Credit Mean, Anyway?
When someone doesn’t have the best credit, immediately others assume they’re not good with money. This may not actually be true, and as a landlord, you want to be savvier than to simply use credit as a means of dismissing someone out of hand. Sometimes having no credit or bad credit is a sign of financial savvy.
For example, if you took out a loan in 2006, paid it off by 2008, and then accrued no further debt for the following seven years, in 2015 your credit history would be totally deleted by credit reporting agencies. They would assume you are dead or something. So if you had good credit before, lived within your means, and took on no debt for a while, your credit disappears.
On paper, this makes it look like you’re not that good with money. In reality, it’s an indicator you’re very responsible indeed. Here’s another similar scenario: say you take out a loan, pay it off dutifully for a number of months until the principle is gone, then pay that last payment so you no longer have any debt. The moment you finish paying, your credit would drop.
As it turns out, one factor determining credit is whether you have any existing debt, and how you handle that existing debt. If you pay everything off before the maturation of your loan, and no longer have any debt, that actually looks bad to credit reporting agencies. So as a landlord, you have to be savvier than to simply judge based on credit. Here are tips.
1. Secure Secondary Means Of Financial Assurance
If someone has bad credit, but they don’t have existing debt, and they have a solid bearing that recommends professionalism and security, you might just ask for an additional month or two upfront. If they’ve got the money to pay for six months in advance, and that’s the term of your lease, this can be a fine solution to the issue.
That said, accepting rent upfront can be dangerous, too. Here’s some more information on that to consider.
2. Explore Cost-Alleviating Options
Also, something you can do that’s advantageous for both you and an individual suffering from poor credit involves moving services providing rebates, and sometimes even totally free moves. For example, you can engage a real estate company that can help less affluent tenants move-in easier. For more information, check out this useful option from UmoveFree.
3. Ask Potential Tenants To Provide Financial Records
Something else that makes a lot of sense is getting what records are available for a potential tenant. Ask for their bank statement to see, firstly, how much money they’ve got in their account, secondly, how regularly additional resources expand that account, thirdly, whether that account is growing, contracting, or remaining steady, and fourthly, if there are overdrafts.
The amount of money, the amount of income, the amount of growth, and the frequency or infrequency of overdraft situations will indicate how good someone is with money. While this isn’t the only way to determine such things, it does represent a very worthwhile means of ascertaining how trustworthy a prospective tenant is.
Maximizing Your Potential As A Landlord
Ask potential tenants for financial records. Look into options that alleviate the expenses of tenants with bad credit, and simultaneously expand your local positive reputation as a landlord with relevant associated businesses. Also, secure secondary means of financial assurance. This can mean asking for more upfront, or even the first lease in a lump sum.
As a landlord, it’s integral to protect your interests, and part of those interests involve being a profitable enterprise. Many good tenants have bad credit, and many with good credit are bad with money; accordingly, they wouldn’t be “good” tenants. Understand this reality, and use common sense to parse between either category of potential tenant accordingly.