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5 Tips for Renting to Someone with Bad Credit

Last Updated: October 17, 2023

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If an applicant doesn't have an ideal credit score, landlords have options and can still rent to them. Landlords can ask applicants to provide context about their low score, have a guarantor for the lease, show proof of income, pay a larger security deposit, and have a shorter lease term.

As a landlord, you're likely going into your tenant search hoping to find the perfect applicant. Ideally, they'll have an impeccable renting history, glowing references, an excellent credit score and pass a tenant screening.
Unfortunately, it isn’t always possible to hold out hope for that angelic applicant. Sometimes your financial circumstances make it unrealistic to sit on a vacant property indefinitely.
However, just because someone doesn't check all the boxes in your criteria doesn't mean they're a bad choice to offer a Lease Agreement. Plenty of mature and dependable adults are stifled by poor credit scores that don't accurately represent their current financial situation.
Sometimes, an applicant just needs to catch a break. Fortunately for landlords, there are also ways for you to lower the risk that comes with the uncertainty of renting to someone with a low credit score.

What’s considered bad credit?

In 1968, the Fair Housing Act made it illegal for property managers to discriminate against an applicant based on color, race, national origin, religion, sex, or familial status. To avoid lawsuits, many landlords began relying heavily on credit scores to determine whether they should rent a property to a tenant.
The FICO score was introduced in 1989, and it has since become the standard model for determining whether someone has good or bad credit in the United States.
FICO credit scores are categorized into groups that range from poor to exceptional:
  • Poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Exceptional: 800-850
In the U.S., 27% of Americans have a credit score between 300-650, and the age range with the lowest average score is 18 to 24 years old. This can make it difficult for landlords to find a tenant that presents as a safe bet on paper, considering 49% of renters are under 30 years old.
Here are five tips you might find helpful if you're considering renting your property to a tenant with bad credit.

Discuss concerns with an applicant

Many landlords include a section in their Rental Applications that require potential tenants to consent to a credit check. The section tends to ask the applicant if they've declared bankruptcy in the last seven years. It also provides a space for them to explain or provide context about their financial past to give you a heads up about any possible issues.
If you really like an applicant but have concerns about their credit score, one of the best ways to handle the situation is to have a discussion with them. Being upfront with a tenant about your concerns can give them a chance to respond directly to them.
There are many understandable scenarios that can lead to a reliable tenant having a bad credit score.
Maybe they have a short credit history or were irresponsible with their money in college but have slowly been rebuilding their credit. Perhaps they had an illness or injury that kept them from working a few years ago and only had enough money in their savings to either pay their credit card balance or keep a roof over their head. There are infinite reasons a good tenant can have bad credit.
On its own, a credit score doesn’t always tell the whole story. A simple conversation can get to the bottom of things and possibly alleviate your concerns.

Include a guarantor

Even if you’re confident that the applicant can pay their rent on time and upkeep the property, there are other options available to landlords that can act as a safety net just in case things go sideways.
Requiring the Residential Lease Agreement to include a guarantor is one way of reducing the risk associated with renting to someone with bad credit.
A guarantor is a third party with good credit who agrees to take on the responsibilities and obligations set by the lease agreement if the tenant is unable to do so for themselves, including paying the rent. The guarantor will have a stake in the agreement because if they also can’t make the payments, their own credit score will be hurt.
This approach can give you peace of mind because you'll have an additional way of receiving your payments. It's also a great way for an applicant with bad credit or no renting history to start building a positive renting history.
A guarantor is often the tenant’s parent but that isn’t always the case. There are also companies (e.g., TheGuarantors) that will act as a guarantor for them if they qualify. The tenant getting accepted by one of these companies is usually a good sign that they can afford the rent too.
Just like you would with a tenant, it's a good idea to screen guarantors, so you're sure they are financially stable and reliable.

Require proof of income

An applicant who can show proof of a steady source of income is more likely to be a lower-risk tenant.
If they have recent pay stubs, bank statements, or tax returns that indicate they can comfortably afford the rent, that information may be a more relevant indicator of their current circumstances than a credit score that is still poor due to events that occurred years ago.
It's common for landlords to even ask tenants to list their employer as a reference on the application so they can confirm their employment and income information is accurate.
If the applicant can show that they have a bank account with bank statements, that also means direct deposits or postdated checks are a payment option for rent. This approach increases the chances you receive payments in full and on time every month.

Set a higher security deposit

Requiring the tenant to pay a higher security deposit can reduce the financial risk you take by accepting someone with a low credit score. If the arrangement doesn't work out because they don't pay their rent or are evicted, you'll have the security deposit to cover any losses and cushion the blow.
However, some states limit how much you can charge for a security deposit, so check your state's laws before requesting payment from a tenant.

Make the lease a shorter term

When you first started accepting Rental Applications, you might have hoped that you'd sign a tenant to a one or two-year lease. However, you may want to go with a shorter-term lease if you're renting to someone with bad credit.
Going with a three-month, six-month, or month-to-month lease lets you and the tenant have a trial run together. If things go well, you can renew the lease or sign a longer-term one if you feel comfortable with it. On the other hand, you can end the tenancy rather quickly if it doesn't work out.
Another perk to having short-term leases is it lets you continue to renew the lease with the tenant so your Lease Agreement always reflects the tenant's current situation. For example, if the tenant initially didn't have a pet but wants to get one in the near future, the next agreement can include a pet fee and outline the conditions for having a pet on the property.

Weigh the risks against the benefits

As a landlord of a rental property, you carry much of the risk in the arrangement. Signing any applicant to a Residential Lease Agreement, regardless of their credit score, comes with a level of uncertainty.
Choosing a tenant may ultimately come down to a gut feeling but following these five tips will help ensure you did everything within your power to minimize the risks that come with renting to someone with a low credit score.