After spending time preparing your property for renters and then advertising it, you need to find a suitable tenant from your list of applicants. Many landlords begin by sifting through the applications, ensuring each potential tenant meets a certain set of criteria. While the ideal tenant is certainly out there, it may take some time and many applications to find that person. This situation could leave your unit vacant and your property debts unpaid. Essentially, this means it may be worthwhile to sign a lease with an applicant who does not meet all of your expectations. When renting to a tenant with an imperfect rental or credit history, landlords can minimize the risks they face. This post can offer tips for renting to someone with bad credit thereby helping protect you and your property.
Tips for renting to someone with bad credit
1. Discuss any rental application issues with the applicant
The first and most important step is to discuss the problem with the applicant. What makes this applicant risky? Perhaps their credit score is low, or maybe they have high credit card debt. Finding out what the applicant has to say about the issue is a good way to determine if you should approve their rental application. Some individuals have understandable reasons for the blemishes in their credit history. Some may even offer to ease your worries by providing some form of insurance. They could ease your concerns with confirmation that a debt has been paid or agreeing to pay more rent per month.
2. Have the tenant sign the lease with a guarantor
Signing with a guarantor is common practice for individuals with no credit history, such as a young adult moving into their first apartment. It is also a good practice for handling an applicant that may not meet your expectations for a tenant. When it comes to a residential lease, a guarantor, sometimes called a co-signer, is a person who ensures the tenant’s rent will be paid by agreeing to take on the payments if the tenant cannot. In other words, this person must fulfil the tenant’s lease obligations or suffer consequences to their credit record. They are a surety, providing the landlord with an additional opportunity to collect rental payments. Like a tenant, screen this person to be sure they are financially stable and reliable.
3. Increase the tenant’s security deposit
Asking for a higher security deposit is tricky. This is because it is illegal in some areas to ask for a security deposit that is higher than one month’s rent. So, before requesting a higher deposit, it’s best to review your area’s mandated limits. That said, raising a security deposit to the legal limit is a good way to minimise the risk of renting to someone with a subpar background.
4. Shorten the term of the lease
Another option is to shorten the term of the lease you originally had in mind when signing with a tenant you are unsure about. This may mean changing a yearly lease to month-to-month or your 6-month lease to 3-month. This will allow you to end the tenancy early and easily in case you have any difficulties.
Ask for rent payments by direct debit or postdated checks
5. It’s recommended that you choose an applicant with a reliable source of income and a bank account. That way, you can ask for direct debit (also called direct bank withdrawal) or postdated checks to help make sure rent is paid in full and on time every month.
