You’ve finally put your rental on the market, and a prospective tenant has the cash needed to cover rent, security deposits and a pet deposit for their cat. They have a full time job, and a checking and savings account.
But wait. There’s the matter of their credit. It’s OK now, but they had several months between jobs and their car was nearly repossessed after they missed a couple of payments, but everything is on track now. Their past credit problems shouldn’t matter to you, the landlord… or should they?
Here’s why credit history is so important. Landlords and property management companies frequently run credit reports on prospective tenants; the information contained in such reports can be used to verify employment, previous addresses, and their credit history. A credit history can show legal actions and matters of public record including bankruptcy, divorce, judgments, and evictions.
A credit report also indicates how many credit accounts they have, how much they owe, and how they pay each account. If they’re up to their ears in debt, a property manager may view them as a high risk tenant.
“The only interest in my rental is from folks with credit issues.”
“Should I take the risk to ensure I’m rented, or it is better to remain vacant?”
First things first, it is always a good habit to ask for explanations for negative entries on a prospective tenant’s credit history. A period of unemployment after being “downsized,” or reduced income caused by divorce, illness, or an accident are examples of common situations that can damage their credit history, but are not typically indicative of one’s level of irresponsibility.
DC property management is not a one-size-fits-all business. It is useful to have candid conversations with prospective tenants when you’re rental isn’t prime real estate, and interest is scarce. You can ask for more money down to assuage the risk you’re taking one; you can also reposition your rental as subsidized housing. The rent cash flows are guaranteed, and you’re able to increase the security deposit to cover your increased risk of damages.
The rule: Credit is a primary indicator of how someone will take responsibility of your property; but not all credit blemishes are the result of a prospective tenant’s irresponsibility.
The solution: Ask for explanations. Trust, but verify those explanations. Lastly, ask for more references–employment and housing.
If you’re concerned about how to interpret credit history, or interested in a DC property management company helping to fill your rental with reputable and responsible tenants, contact us for more information.