How to Rent a Property if You Have a Bad Credit Score

Mar 10, 2014

Journalist Angela Colley of Realtor.com contacted Melissa Zavala, the Broker of Broadpoint Properties to ask her a number of questions about renting to tenants with bad credit. With the Great Recession now at an end, there are many more individuals with poor credit as a result of short sales, loan modifications, and foreclosures.

Should renters explain their credit situation up front or wait until after the credit check? In my opinion, it’s always best to air your dirty laundry as soon as possible. This will send a message to the property manager or the owner that you are honest and trustworthy. If you wait until after the credit is checked and your credit is questioned, then you may be perceived as trying to “cover up” something.

Can references help offset bad credit? Who should those references be from? In order to avoid accusations of discrimination, every property management company must have policies in place for credit checks and security deposits, and those policies must be the same for all applicants regardless of their credit issues. References are great and often can compensate for certain issues of bad credit. But, ultimately, it is the owner of the property that must consider the risk versus the reward. With less desirable properties, owners may need to be more open-minded when it comes to applicant criteria.

Do renters with bad credit end up paying more to rent? Are landlords more likely to charge a higher security deposit or require more rent upfront before approving the tenant? Each state has different rules and regulations as to how much rent can be collected up front and as to how large of a security deposit can be collected. Owners and property managers should check should check with an attorney or with their local association for more information on the procedures for their specific state.

Do co-signers have the same background checks as renters—such as looking into employment and references—or will a credit check do? Co-signers have to complete the credit application as well and are subject to the same background checks as the prospective tenants.

In Summary:

As a San Diego County Broker of an Independent Brokerage, which has a Property Management Division, we are constantly running across applicants with poor credit. Lots of times the poor credit can be explained. For example, there are people who, during the recession, sold a home as a short sale after missing mortgage payments, or had a home foreclosed due to the job loss. If these individuals now have solid employment and can demonstrate their previous problems have been resolved, many property owners may be amenable to taking on these tenants. Other options for tenants with poor credit would include seeking a co-signer–a party who is not going to live in the unit, but who is willing to be a second signer on the lease and accept any legal and financial responsibility in the event that the tenant defaults on the rent.

If you are seeking a property and have bad credit, be prepared to explain yourself.Have documentation that will prove to the owner or property manager that your poor credit is in the past. Be prepared with a cosigner just in case and do not to ask for any special concessions (such as paying the security deposit over time) when starting your rental search. Once you have demonstrated that you are a stellar tenant by paying the rent on time, overcoming future problems of this nature should be a breeze.