Importance of credit reports in the decision to rent to someone.

Rehabbing, Fix and Flip, Rental Properties
1

I was talking with a colleague yesterday and he shared that his credit is bad because of a bad partnership he had recently and that his partner did not pay his share of the loans. It ended up hitting his credit pretty badly. Anyway, he has a good paying job. But because of the defaults he has a very bad credit. I believe eventualy he will be able to fix it…

Then I started thinking about a thread we had here few weeks ago about credit score and the people who have them. At first I thought that my colleague would be a good risk and I would rent to him - his bad credit was a result of one bad decision to go in business with someone that did not pay his share of the bills. However as I was talking with him I realized that he might not be such a good risk - in the past he managed his financials responsibily because he had a good credit. He had a lot to lose if he was not financially responsible. Now that his credit is bad, he doesn’t have much to loose. So he may not care as much in maintaining it. One more late payment will not really make much difference to him (besides delaying his recovery). It made me rethink the importance of credit reports in the decision to rent to someone.

I hope this makes sense. At least it does in my mind. I thought about sharing with the rest of the forum.

Have a wonderful day!

2

When I get this type of applicant, I scrutinize the report for confirmation. I expect to see good payment history before the incident, poor payment history during, and good payment history after. I won’t deal with someone who just gave up and doesn’t care.

3

Sometimes its a matter of who they didn’t pay. When I was in my 20’s, my credit was as bad as it could get. BUT, I was always on time with my landlord. I didn’t have to money to pay anythng else. I had to prioritize. I showed him all my reciepts. He gave me a chance and when I hit hard times again, he got paid before anyone else. He was my best reference when I moved into another place. However, I believe my situation is rare. Most people I know don’t discriminate on who they stiff!! Especially when they feel the laws are in their favor.

4

I’m in this exact situation. I’ve got a young couple that came right out and said both of their credit is bad because of divorces. They didnt want to pay me the credit check fee because they had one pending with another landlord. Now he calls me and sais they were turned down and is there any way I would lease to them w/out checking their credit. They don’t wanna lose another $30 each if I’m gonna just turn them down. So in this case I wouldnt even see the credit report.

I havent checked because there’s no application yet, but I do believe them that they’re both employed. He said he’d be willing to pay a higher deposit and waive a $200 discount on first month’s rent I’m offering for a deck rebuild that any new resident will have to endure.

I have another prospect on Saturday so my gut is wait and see about them. Only thing I know is they have a 3 year old boy.

This is my first rental, first tenant. Seems like breaking a landlord commandment is not the way to start.

5

I might be wromg but when a person has their credit pulled they are entitled to a copy. They may be able to modify it though.herbster

6

Mike,
You have to establish a standard and stick to it. We borrowed from some of Propertymanager’s policies (thanks Mike) regarding misdemeanors, utilities that have been shut off, evictions, etc. for screening potential tenants. He is obviously successful with this since he makes his living doing rentals. So we followed his standard when we established our policies (no reason to re-invent the wheel). We had a very young couple apply for one of our apartments. We didn’t even have to pull their credit (probably don’t have much anyway). Just by searching my county court website, I was able to find that the guy has had 5 misdemeanors in less than 2 years.
Criminal tresspass, Domestic battery/bodily harm, Possession and consumption by a minor, another Possession by a minor, and another Domestic battery which was supposed to be a felony (prior conviction), but got reduced to a misdemeanor.
He also served 90 days in jail last year and just got done with another 49 days a couple months ago.
They seemed nice, but he’s obviously got issues and can’t seem to learn from his mistakes.
I’d rather the place sit vacant another month than have someone there who’ll be in trouble with the law and possibly be tearing things up.
So you may not even need to see a credit report. There may be other issues with them. Stick to your standards. We try to be realistic and know we’re not going to have perfect people renting from us, but this guy’s string of problems is not going to become our problem.

7

Something doesn’t seem right with this situation. The fact that they don’t want to lose the $30 fee raises a red flag. They could go to any credit agency website (or all three) and get an updated copy of their credit report. You need to see what’s on there. Even if you waive the fee if you end up renting to them. Equifax has good reports for $35 that clearly show when they got into trouble and whether or not they’ve fixed their situation. The fact that they have a small child should have no bearing on your decision. Would you be able to evict them & their young boy in January for not paying the rent? The reason some people have enough money to pay up front is because they stiffed the last landlord. Whatever criteria you use to rent to tenants has to be consistent. Good luck.

8

The other consideration here is the class of the rental/tenant. If you’ve got a nice SFH that rents at a premium price, then you definitely should get a credit check (after checking everything else). On the other hand, if you are looking at very low income tenants for an apartment building that has very low rents, then a credit report is of limited value. Low income tenants almost always have terrible credit, if they have any credit at all. However, many of these people still can be excellent tenants. I have some of these low income tenants who have lived in my rentals for more than 5 years and they are always the first to pay their rent. If they needed a 650 credit score to rent my apartments, they wouldn’t be there.

So, my suggestion is to consider the class of rental/tenant. In a nice middle class rental, a credit report is a must. In a very low income rental, a credit report could be very little value.

Mike

9

Danger, Mike-in-Cali, danger! Run away! Run away!

This clown is willing to pay $200 a month more, but he isn’t willing to pay $30 for a credit report?

Your plan is to not pull a credit report because if you see a credit report, you will have to turn him down? But as long as you don’t actually see the report, it will be OK to take him?

Pull your head out of…um, the sand, Young Grasshopper.

Credit scores are worthless. They don’t even make any sense. But you want to know who they aren’t paying. You want to know how large their debt load is (if they have $1800 income, 4 kids, and 2 car payments of $600 apiece, and 3 credit card payments to make, they are going to have a bit of trouble getting the rent paid.

The credit report will give you prior addreses, so you can see if they have given you real addresses for their prior residences. That allows you to find their real current and prior landlords.

Sometimes you will see judgements given to prior landlords. Any judgement is bad. If they won’t pay until they are taken to court, and then still won’t pay, why should they pay you, either?

And for pete’s sake, do a criminal.

Last night on the news, the local police just seized 2 1/2 million dollars worth of marijuana out of a very expensive luxury house. You guessed it: a rented house.

That landlord did not do hs criminal background check.

10

Oh, its not my plan. Thats what they’re asking me to do. And just to clear it up, it’s $200 off the first months rent only, and $60 total credit fees for the two of them. Its important to check both parts of a couple, right? Especially if they’re not married like this case. But even if they’re married, correct?

Anyway, thanks for all the advice. I have no plans to rent to them. I’ve got two more showings this weekend and will wait another month if I have to.

Even more outrageous was a call I got today. A lady asked if I minded bad credit. I explained that it depends on if it seems like a mistake thats fixed or a pattern, etc. I said for example being chased by collections was bad. She then admitted that she was being harrassed by collections and was not paying anything but she had a great rental history. Then she proceeds to tell me how she bailed on a lease in TX, but she had a good excuse bla bla bla. I said thanks but no thanks while trying not to laugh.