Landlords and rental property owners know how vital it is to screen potential tenants before agreeing to a lease. You ideally want to find qualified applicants who are responsible, stable, and have a proven record of making rent payments on time. One of the most important ways to do this is to run a credit report. However, tenant credit scores are not the only factors that show an applicant’s renting potential reliability.

If you want to keep your rental property occupied and rental income flowing, you may need to be a little more flexible with tenant credit scores and credit checks. Here is some insight on tenant credit scores and working with rental applicants who have less-than-perfect credit.

How to Evaluate a Tenant’s Credit Report

When you get a potential tenant’s credit report for review, there is a lot of information to consider, including:

• Current credit accounts.
• Credit history.
• Credit inquiries.
• Public records, including bankruptcies and collections.
• Overall credit score.

The first thing you will notice on the report is the credit score. Generally, a score of 740 or higher is considered very good or excellent credit. Anything ranging between 580 and 739 is fair to good credit. If the tenant credit scores fall below 580, you are looking at poor credit. While these numbers are designed to represent a person’s debt and payment history, there could be more to the story.

Younger Applicants May Not Have Enough Credit Established

One thing to consider with younger potential tenants is that their lower credit scores could simply reflect the fact that they have not had as much time to build strong credit. They may not have multiple credit cards or different types of loans on their credit history. In some cases, young applicants could have no credit history at all.

However, a lack of credit history does not have to make a potential tenant automatically ineligible to rent. Other tenant screening factors, such as proof of income, bank statements, and references from employers or previous landlords, should be given more weight when considering these types of rental applicants. You can still get a sense of the person’s ability to pay, reliability, and character from these sources.

You Can Ask for a Larger Security Deposit

While a tenant’s poor credit score might make you reluctant to rent to them, there are things you can do to mitigate financial risks. For example, you can ask for a more substantial security deposit to have something to fall back on if things do not go as planned.

If you are a Las Vegas or Henderson landlord, you can even ask for two months’ rent in advance — in addition to a deposit — for added security and an incentive for tenants to stick to the lease agreement. Just keep in mind that the deposit cannot be more than the value of three months’ rent in Nevada.

Allow Tenants to Have a Cosigner

Another way to get around poor credit scores is to ask your tenant to have a qualified cosigner on the lease agreement. A cosigner with good credit provides a backup option for landlords if the tenant fails to pay rent. Take the time to fully screen the cosigner, just as you would if that person were a potential tenant. Because they are legally responsible for rent, you want to make sure cosigners have the ability to cover the rental payments.

Minimum requirements for screening a cosigner should include:

• Completing a rental application.
• Consenting to a credit check with applicable fees.
• Providing proof of income and steady employment.
• Agreeing to the full financial obligation of the lease.

Request to Set Up Automatic Rent Payments

If an applicant has solid references, sufficient income, and a good rental history but falls short in the credit department, you may want to consider mandatory automatic rent payments. Requesting that monthly payments be automatically deducted from the tenant’s bank account ensures you are paid on time and helps forgetful tenants from inadvertently missing the due date.

Henderson and Las Vegas property management companies typically offer resources and technology to allow tenants to pay their rent online or set up monthly auto-payments. These payments are processed quickly and are available in the rental property owner’s account through direct deposit. If you would like to learn more about monthly rent collections with the help of a professional property manager, contact the Black & Cherry property management team today!

Consider the Types of Debt the Potential Tenant Owes

If tenant credit scores are not bad but also not stellar, it might be worth delving into the details of the credit report. Some types of debt carry more risk than others, which may influence your decision to rent to this person or not.

Debt with higher interest rates, such as credit cards, can quickly become problematic as interest charges add up. High credit card debt could also indicate that the applicant relies heavily on credit cards and may not make the best financial decisions. However, debt like student loans, medical debt, or car payments are less risky. If the credit report shows they are making regular, on-time payments on these debts, you may not want to completely rule them out.

Rejecting a Tenant with Poor Credit Scores

Of course, you still have the right to reject an applicant because of bad credit. While you may want to exercise compassion to fill your rental vacancy quickly, sometimes it is simply not a good business move to rent to a tenant with poor credit or other red flags in their application. Just be sure to handle the situation respectfully and professionally to avoid miscommunication.

When you let the applicant know that you will not be moving forward with them, provide a straightforward explanation that does not sound personal or judgmental. You should also include a copy of the person’s credit report with your correspondence, so they have a chance to review the details.

Screening Tenants with a Las Vegas Property Manager

Screening potential tenants is arguably the most important step in the rental process. Finding the right tenants who pay rent on time, are respectful of neighbors, care for the rental property, and have a stable rental history can set you up for long-term success.

The property management team at Black & Cherry has decades of experience helping landlords and property owners throughout Las Vegas and Henderson find the perfect tenants. We handle the full screening process and offer additional approval requirements for potential tenants with lower credit scores. Contact our property management team now to see how we can help you with tenant screening and managing your rental property!