No, you don’t need to avoid tenants with bad credit scores. For tenants with bad credit, landlords can safeguard themselves with extra measures such as a guarantor or a higher deposit.
Tenants with bad credit can be a risk for landlords as it could be a sign that they are financially irresponsible, which may impact rent payments. However, as a landlord, there are certain actions you can take to make the set-up more secure.
If you’re finding tenant sourcing difficult or not sure what measures to take as a landlord, we can help. At J Property Management London, we help landlords protect their property assets. From sourcing reliable tenants to assuring rent collection, we’ve got you covered. Get in touch today to see how we can help you with your tenants.
What Are The Risks Of Renting To Tenants With Bad Credit Scores?
Renting to tenants with bad credit scores can be risky for landlords for the following reasons:
Financial Instability
If someone has a bad credit score, it is an indication that they may not be financially responsible. As a result, this could mean late or missed rent payments – not an ideal scenario for the landlord depending on rental income.
Poor Property Maintenance
Tenants who are having financial trouble may not take care to fix repairs quickly or address any issues with the property. A lack of regular maintenance could lead to greater damages in the future which could be even more expensive to deal with.
Costly Legal Action
In the case that the situation escalates and you have to evict the tenant or take them to court, this can be extremely stressful, time-consuming and expensive.
What Should You Do If A Tenant Has A Bad Credit Score?
If a tenant has a bad credit score, here are some steps that landlords can take to protect themselves:
Thorough Tenant Screening
The first step that landlords should take before accepting a tenant is a thorough background check including not only a credit check but their rental history, employment history, current income and character references. Landlords should always check that there is a history of consistent, punctual payments.
Talk To The Applicant
It is always worth talking to the applicant about their credit score. The bad credit score could be a result of something that happened a long time ago and may no longer be relevant. If they have a steady income and can demonstrate reliability, the bad credit may be less of an issue.
Ask For A Guarantor
Landlords are within their rights to ask for a guarantor if they feel that extra security is necessary. Having a guarantor protects the landlord as it means that regardless of the financial situation of the tenant, someone is agreeing to pay rent each month. It is a great way of giving peace of mind to the landlord for tenants with bad credit.
Higher Security Deposit
Asking for a higher than usual security deposit could protect landlords by giving them a bigger financial buffer to cover any late payments.
More Rent Upfront
Some landlords may choose to ask the tenant to pay several months’ rent at the beginning of the tenancy to cover them in the case of any missed or late payments.
Shorter Lease Terms
Landlords can shorten the lease terms (e.g. six months) as it gives them more frequent opportunities to reevaluate the tenant’s financial stability.
Require Proof Of Income
If a tenant is able to show that they have a steady income, they are likely to be less of a high-risk tenant – in spite of a bad credit score. Demonstrating their income through recent payslips, bank statements or tax returns is a good way of letting the landlord know that their current financial situation is stable.
Can You Reject Tenants With Bad Credit?
Bad credit score, lack of credit history or an insufficient income are all valid reasons why a landlord might reject a tenant.
Other valid reasons include:
- Criminal record
- Previous evictions
- Violation of occupancy limits
- Negative references from former landlords
- False or misleading information on the application.
However, in some cases it is illegal for landlords to reject a tenant. The fair housing laws outline the following protected characteristics
- Race
- Religion
- Colour
- Sex
- Ethnicity
- Disability
- Familial status (e.g. single, divorced, with children).
Should Landlords Accept Tenants With Bad Credit?
Landlords should treat tenants on a case-by-case basis and ultimately can do what they decide is right in deciding whether a tenant is eligible to rent. Bad credit can be a red flag for landlords as it indicates that a tenant may pay late or miss payments entirely. However, bad credit can not be looked at without taking into account other factors.
As credit history is based on past information, other things may paint a far more relevant picture of a tenant’s current financial situation including proof of income and landlord references.
If you’re worried about a tenant, adding extra financial security through a higher deposit or more months’ rent up front could be a good idea. Requesting a guarantor is also a great way of guaranteeing rental income each month.
Secure Reliable Tenants With J Property Management
At J Property Management, we are experts in helping landlords manage their tenants. From initial thorough screening of tenants to drafting a watertight tenancy agreement, ensuring a smooth move-in and managing monthly rent collection, we can do all the hard stuff for you. We’ll make sure that your flat is occupied by trustworthy tenants and that rent is paid on time every month. Contact us today and see how we can help!
