Would you rent to someone with no credit?

[shamile]

Hello. I am a long time reader and first time poster. I am screening two applicants for my terrace home. The home is 8 years old and has hardwood in living areas and carpet in the bedrooms. The profiles are

A) A recently separated guy in late thirties. He and his ex just sold their house. He has a good job. His credit check shows student loans which he has not missed any payments in the past 10 years. However there is nothing else, not even a credit card and therefore there is no credit score. He has a cat which has no claws.

B) A 31 year old female and a 50 years old guy who it appears will be moving in together as a couple. Both have good jobs. The guy just sold his 14 year old house a few months ago to travel and is now returning back to rent a place with her. The female was the one who viewed my place and while she was very interested asked whether it could be possible to have a shorter lease. I refused and she is ok with a year.

I was initially leaning towards candidate A as he seemed to me to be a more long term tenant however the fact that he has no credit makes me uncomfortable. Any thoughts?

Thanks

 

[NeilUttamsingh]

QUOTE (shamile @ Nov 4 2009, 09:37 PM) Hello. I am a long time reader and first time poster. I am screening two applicants for my terrace home. The home is 8 years old and has hardwood in living areas and carpet in the bedrooms. The profiles are

A) A recently separated guy in late thirties. He and his ex just sold their house. He has a good job. His credit check shows student loans which he has not missed any payments in the past 10 years. However there is nothing else, not even a credit card and therefore there is no credit score. He has a cat which has no claws.

B) A 31 year old female and a 50 years old guy who it appears will be moving in together as a couple. Both have good jobs. The guy just sold his 14 year old house a few months ago to travel and is now returning back to rent a place with her. The female was the one who viewed my place and while she was very interested asked whether it could be possible to have a shorter lease. I refused and she is ok with a year.

I was initially leaning towards candidate A as he seemed to me to be a more long term tenant however the fact that he has no credit makes me uncomfortable. Any thoughts?

Thanks

Hi Shamile,

Candidate A could end up being more of a `long term` tenant.

You are going to have to dig deeper and ask this candidate a number of more detailed question.

If he is in his late 30s and he has no existing credit cards, that seems a bit odd to me.

Find out why this is the case. Ask more questions...

Regards,
Neil.

 

[shamile]

I got income verification and a financial statement from Candidate A. His income is around 3 times the rent but he has barely enough funds to pay for first and last months rent. He was using his partner`s credit card. From what he told me, since he had student loans, he did not get any more credit. But it does appear bizarre.

Candidate B appears to be moving in together as a couple the first time. I also spoke with the guy in Candidate B and he is looking for a place for a couple years after which he wants to build his own house in the country. The house he sold was pretty much paid off and I foresee no financial issues with Candidate B. But candidate A may be more long term. Tough choice!

 

[Alvaro Sanchez]

I would take "B", they looked more solid candidates... it could be a good reason why he does not have credit plus asking Dad for support at 30 still a bit odd... If any tenant comes to me and says that they do not have 1st month and deposit ready, I do not take them seriously. If you still want "A", I might ask him to add Dad to the lease.

QUOTE (shamile @ Nov 5 2009, 11:52 AM) I got income verification and a financial statement from Candidate A. His income is around 3 times the rent but he has barely enough funds to pay for first and last months rent. He was using his partner`s credit card. From what he told me, since he had student loans, he did not get any more credit. But it does appear bizarre.

Candidate B appears to be moving in together as a couple the first time. I also spoke with the guy in Candidate B and he is looking for a place for a couple years after which he wants to build his own house in the country. The house he sold was pretty much paid off and I foresee no financial issues with Candidate B. But candidate A may be more long term. Tough choice!

 

[invst4profit]

I would not even consider A. If you decide to go with B, which is also a risk because they have never lived together before, insist that they both be included on the lease. Chances are they will split up and one will move out, possibly both.
Make sure you do a thorough back ground search. Get there SI#s and employment info in the event you end up in small claims court.
If they are reluctant to agree with your requests--Move on to candidate C.

 

[JoeRagona]

I agree with Greg. Another step in your due diligence is to have a criminal check pulled. This will filter out many low grade tenants for many reasons. One being `invasion of privacy` which is a red flag in my book.

You need a criminal check to even go on a bus trip with your children these days so these excuses do not pass my filter. You may end up passing over a great tenant this way, just like filtering a property but in the end you have more diligence from which to make a choice.

You should also have a particular tenant profile in mind each time you source new clients. Write your ads geared towards that audience and you will have an easier time finding quality people. Have another set of eyes look at the application for you as well. Maybe your mortgage broker or agent...these people are indispensable in my selection process.

Good luck

 

[TomB]

QUOTE (shamile @ Nov 5 2009, 10:52 AM) I got income verification and a financial statement from Candidate A. His income is around 3 times the rent but he has barely enough funds to pay for first and last months rent. He was using his partner`s credit card. From what he told me, since he had student loans, he did not get any more credit. But it does appear bizarre.

Candidate B appears to be moving in together as a couple the first time. I also spoke with the guy in Candidate B and he is looking for a place for a couple years after which he wants to build his own house in the country. The house he sold was pretty much paid off and I foresee no financial issues with Candidate B. But candidate A may be more long term. Tough choice!

I would avoid Candidate A. I was actually faced with a similar choice not too long ago. Rented to someone with sketchy credit, but otherwise was good. Previous landlord said all was good, employment checks out with very high income, clean cut, etc. etc. Long story short,,,, every month is a hassle getting the rent. It`s always something - payroll screwed up, out of town, forgot, etc...... So far there has not been one month when we got all the rent on time. It comes in stages throughout the month. I doubt he will make it to the end of the lease before we will be serving him notice to vacate for violating the lease agreement. We will never rent again to someone who doesn`t pass the credit check with flying colors.

 

[OlegP]

Without specifically analyzing A and B, I would like to comment only on the credit issue.

Please keep in mind what exactly credit report tell you. It shows payment history of a particular individual, meaning that you get to see the pattern in which your prospective tenant pays bills. Ideally, you want to see what we call "a thick file" in the credit industry, i.e. several bank credit cards, maybe some retail cards, loans over a long period of time. That demostrates this person`s ability to manage their credit bills well or poorly. In the example you show, the file is "thin", i.e. just student loans. It does, however, show that he pays on time, which is a plus. In my experience, it is quite common for renters to have very thin credit history, if any at all.

Statistically, people with very thin credit files or no file at all are higher credit risk. So you may want to strengthen you selection criteria by looking for some stability in their behaviour, i.e. minimum 24 months at previous address, minimum 24 months with current employer, no previous evictions, etc.

Hope this helps.

 

[MikeMcCrae]

I don`t do credit checks on my tenants. Most times tenants have bad credit. That is one major reason they are tenants. Maybe I have just been lucky but in 30 years of renting I have never been stiffed on collecting the rent. Security deposits and fast action on late payments have always worked.

 

[JoeRagona]

QUOTE (MikeMcCrae @ Nov 6 2009, 01:15 PM) I don`t do credit checks on my tenants. Most times tenants have bad credit. That is one major reason they are tenants. Maybe I have just been lucky but in 30 years of renting I have never been stiffed on collecting the rent. Security deposits and fast action on late payments have always worked.

Wow Mike, interesting take. Doesn`t the credit check at the very least show signs of delinquent payment trends? If so, then those tenants would be ones to avoid correct?

 

[invst4profit]

Definitely a mistake to skip doing a credit check because you presume tenants have bad credit.
Credit check tells a LL a lot more about a applicant than simply whether they have bad credit.
Mike your luck is running on borrowed time but since you are not in Ontario it may not be a big issue.
Definitely can not take the risk of not doing every possible background search on applicants in this province. Professional tenants count on LLs depending on luck to find tenants.

 

[LizHaywardRealEstate]

I think an important thing here is that person A has just sold a house. If the house was clear equity, why does he have no money? If there was a mortgage, would it not show up on the credit history. To me there is concern with his story.

The couple moving in together...I would do work backgrounds. If not at a job very long, good luck trying to garnishee wages if you did get a judgement granted. These people move on and GOOD LUCK finding them to collect!! Also, no personal assets, nothing to seize. If there is solid employment history, they are not as likely to leave or jeopardize their jobs. Get BOTH on the lease so that in the event you have to sue, you sue both.

 

[shamile]

Great comments guys. I decided to go ahead with Candidate B. I verified their employment histories. They had glowing references and stellar credit. Since the suite is in excellent condition and has above average rent, I decided to be conservative.

I was initially set on candidate A due to the fact that I was looking for a long-term tenant this time. I have always had tenants with great credit and never had a problem with rent collection. But my tenancy lengths have averaged between 1.5 and 2 years. This time I was aiming for a more long-term tenant but in the end was unwilling to try to achieve this with someone who had no credit and insufficient savings. Liz, Candidate A had indicated to me that he would use the proceeds from the house sale to pay off his student loan. He did have a mortgage on the house. I have another suite at a lower price point coming up in few months and I always get a lot of applications for it. I plan to use a more holistic approach towards filling that vacancy.

 

[OlegP]

QUOTE (LizHaywardRealEstate @ Nov 6 2009, 01:49 PM) I think an important thing here is that person A has just sold a house. If the house was clear equity, why does he have no money? If there was a mortgage, would it not show up on the credit history. To me there is concern with his story.

The couple moving in together...I would do work backgrounds. If not at a job very long, good luck trying to garnishee wages if you did get a judgement granted. These people move on and GOOD LUCK finding them to collect!! Also, no personal assets, nothing to seize. If there is solid employment history, they are not as likely to leave or jeopardize their jobs. Get BOTH on the lease so that in the event you have to sue, you sue both.

Liz, most Canadian mortgages do not show up on the credit bureau files. That`s a Canadian phenomenon, because in the U.S. they do. HELOC products do show up though.

 

[kboughen]

QUOTE (shamile @ Nov 4 2009, 09:37 PM) the fact that he has no credit makes me uncomfortable. Any thoughts?
Thanks
Individuals without any credit can obtain CMHC, high ratio mortgages in Canada at the markets best rates. This is generally through "New to Canada" programs and used by those new to Canada and have not yet established Canadian credit, however, the program also applies to individuals born in Canada but do not have established credit, often because all the credit was in the spouses (X spouses) name. These individuals must prove their credit worthiness through other means such as confirmation debts have always been on time; rent, utilities, cable, internet, cell phone…. etc. Of course they must also have supporting income, liabilities, assets etc. If the Canadian banking system considers these applicants, I think it is worth a look from a landlords perspective. As a landlord, I do not rule out an applicant just because they have no reporting credit, but I would definitely ask a lot of questions and require other supporting documentation.

 

[kornel]

QUOTE (JoeRagona @ Nov 5 2009, 04:54 PM) Another step in your due diligence is to have a criminal check pulled. This will filter out many low grade tenants for many reasons. One being `invasion of privacy` which is a red flag in my book.

Hi Joey and anybody else that knows the answer.
I thought criminal checks were only available in the US (not in Canada due to PIPEDA). Looks like I was wrong. Can you please let myself and others know where one can go to do a criminal check on a potential tenant?

Much appreciated.
Thanks.
Kornel Szrejber

 

[RebeccaBryan]

QUOTE (kornel @ Jul 14 2010, 06:12 AM) Hi Joey and anybody else that knows the answer.
I thought criminal checks were only available in the US (not in Canada due to PIPEDA). Looks like I was wrong. Can you please let myself and others know where one can go to do a criminal check on a potential tenant?

Much appreciated.
Thanks.
Kornel Szrejber

Send your tenant to the main police station in the city you are in to ask them to get a criminal check. It will cost them $30 in AB. I take $30 off their first months rent because sometimes that makes a difference whether they will consider my appartment for rent or the one next door and I explain to them that they should be happy I am asking for one as the tenants in my building are less likely to do criminal activity.

 

[RebeccaBryan]

Whether you choose A, B, or move onto C, make sure you check out their stories. Do you really think that someone with bad/no credit could have owned a house and sold it? Have you ever bought a house with bad/no credit? Use your common sense when lapping up what tenants try and sell you.

When you do decide on a tenant, make sure you collect information properly. Make sure they have a bank account in the province that your rental property is located in. You won`t be able to freeze their bank account when things go bad if they don`t.

Get their email address too! It`s connected to facebook and that way you will easily find them there which will give you another avenue to find info about them when necessary. Lots of people babble on facebook with personal info way to much and you could captialize on that.

Many applicants tend to partially fill out their applications and that could be an indication that they are possibly hiding something. Just be aware that is a possible reason.

As well, don`t rent to them unless they are willing to give you their SIN number. That is your key to finding them in the future if needed.

When someone claims to have been living with a friend or parents and they have never rented before, be cautious especially if they are of age when it`s likely that this claim isn`t so.

I personally deal with renting apartments that rent between $795 and $950, so I run across a ton of applicants with no/bad credit and I rent to many of them anyway after putting them through extra screening. This is just the reality of the tenant profile I am dealing with. People with good credit aren`t usually living in the apartment buildings I manage. It`s almost amusing, but I never worry about someone with a couple of small things in collections. The people I don`t consider are the ones with 5 or more things in collections.

This past month I had 4 applicants in a row with more than 8 things in collections. Now the ones with a couple seem like a releif to find.

Anway, hope some of this babble helped.

 

[Sherilynn]

Sounds like pretty good babble to me, Rebecca.

I also get an email address. It`s also helpful if you need to contact your tenants but it is too late to call, or if you have a very accomodating tenant that will give entry permission via email (great when your suite is across town).

And you are so right about Facebook. I had tenants that broke a lease because they were supposedly terrified of the lower suite tenants. When I discovered that they were all Facebook friends, I held their damage deposit and they didn`t dispute it. Many people put their place of employment in their Facebook profile too...helpful for garnishment.

And I forget who wrote about having cash after selling a house. In most cases that is correct, in fact I had a recently divorced tenant that paid me a year`s rent in advance. But keep in mind that some people who bought at the peak are selling for what they owe, or possibly less if they are trying to sell quickly due to a divorce. If you doubt them, ask for a copy of their mortgage statement or other home ownership documents.

Regards,
Sherilynn

 

[Berubeland]

I also rent to people with bad credit. I would rather not but when you`re in a bad area or renting a basement apartment you have to select from the people who apply. A suite can`t stay empty forever.

Anyone with a job and good credit could buy a place until April 19th of this year. Now that same tenant needs to save $20,000 to qualify for CMHC financing (for an average Toronto house) This is good news for landlords.

I use a credit check in those cases to verify a couple things. Frequent moves of 4 to 6 months in Ontario means possible evictions. The last addresses are listed in the credit check including dates. Employers also listed.

I don`t believe anything a tenant tells me or writes about themselves, I don`t believe landlord references, I get photocopies of photo ID and SIN card. I don`t trust job letters, they are too easy to fake. I like hard copies of pay stubs, printouts of direct deposit and I check everything I can that the tenant tells me.

I look for liars and fraudsters and keep them the hell out of any place I rent!