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Renting with Poor Credit

Renting with Poor Credit

Credit Defined

In recent months I have been inundated with phone calls for people who are wanting to rent a place yet they claim to have poor credit.

According to Experian, one of the three repositories making up your FICO credit score, they have a list of scores in order to guide one as to their credit risk.  The lower the score the higher the risk.

They break the scores down in the following manner…

  • 800 – 850 … Exceptional
  • 740 – 799 … Very Good
  • 670 – 739 … Good
  • 580 – 669 … Fair
  • 300 – 579 … Very Poor

According to a research study conducted in 2018, it was ascertained that nearly 20% of the population has a credit score at 600 or less.   If we look also at the fair range on the above scale, which is below 700 there are 43.2% of people in this range.

You can read more on how credit works by reviewing this article of mine from a few months ago.

 

Renting Requirements

When you are dealing with a property manager, or even an apartment manager, there are a few things you must understand.   Those people are actually working for the property owner.   They want to ensure whoever is moving into the home will be able to make the monthly payment.  Going through an eviction is not a pleasurable thing for them due to time and revenue lost.

Thus, they want to make sure the person who is moving in is going to be a solid candidate.  This requires both a criminal check and a credit check.

A credit report will have a few things on it.  I would suggest pulling your own credit at some point in time by going to a website like www.annualcreditreport.com to get your free FICO credit report.

Your credit report will have the following items on it.  Make sure they are accurate or you can dispute the inaccurate items.

Your Credit Report

A credit report will report these items.

  1. Your Name.  All variations of your name will be seen here.  The variations will come from every account you have ever had or even applied.  If your name is Kenneth and you used Ken or Kenny in the past, those would be variations.   The use of a middle initial is also a variation.  Women who have changed their last name when getting married or divorced would also be variations.
  2. Your current and previous addresses.  This would include every time you updated a credit card address or a driver’s license change.  Any time you updated your address would appear here.  Usually, it goes from your current addresses and then chronologically to the older ones.  You may have seen this in identify verification of doing a multiple choice of a previous address, even if it was years ago.
  3. Your employer.  If you are applying to rent a place there should be a correlation between the employer on the application to the one that is reporting on your credit.
  4. Your revolving/credit card accounts.  These are your accounts that can change in balance from month to month.
  5. Your installment accounts.  These are the ones that you pay down on a monthly basis.  Examples of these would be car loans, student loans, or home loans. These are the ones that are paid down monthly over time.
  6. Past open and closed accounts.  Negative closed accounts stay on your credit for up to 7 years.  Good accounts stay for 10 years.
  7. Payment history.  This is the one you can see a lot of information on.  It will show paying and in good standing or if there are any 30-day, 60-day, 90-day, or 120-day lates.  This is the one that you can most easily work with.  Always pay your payments on time and you should carry a balance below 20% of usage.
  8. Credit inquiries.  This is a sign that you are looking for a loan.  These can be a red flag if you are attempting to get a lot of credit in a small amount of time.  A car loan and home mortgage shopping may show here as well.
  9. Collection Accounts.  These are the ones that have moved from being late to being in collections.  Also, an eviction where the landlord may have been given a judgment will also appear here.  Unpaid utility bills may also be here.
  10. Public Records.  This is the catch-all of the other things that are associated with you and your credit.  Bankruptcies, foreclosures, and repossessions will also be in this section.   Bankruptcy may be on your report for up to 10 years and 7 years for the other two.


 

Solutions for Renters

There are solutions for poor credit but not all of them may be to your liking.  Many of them can be solved by having money.  Others will require a more creative approach.

Money Solutions

I have worked in real estate for over a decade specializing in a creative form of real estate known as lease options and seller financing.

A lease option will not normally be looking at credit except for recent criminal history and evictions or collections from landlords or utility companies.

The lease option can normally range from 3 – 5% down or higher, and seller financing is typically 10 – 20% down of the purchase price.

If that is outside your budget then the other solution is to do a straight rental.  The hard thing about this will depend as why you have bad credit in the first place.

If your credit issues are due to a divorce, loss of job, medical bills, or other things like that then a particular property or apartment manager may charge a higher security deposit.  In the state of Nevada, they can go as high as three times the security deposit.  Every state is different so you should read this article if you are in a different state.

Creative Solutions

When you may not pass the property manager screening you have other choices.  Some of these may help and others may not.

For a Family

If the move is for you and your entire family then you have limitations outside of going through friends or family.

There are websites like CraigsList.  This is a site that can be broken down into different cities across the nation and you can search for a place under Housing.  One word of caution.  There are a lot of fake postings on there.  Make sure you never send money before seeing the place and you can ask for them to verify who they are.  Should ensure the person’s ID matches the name on the county assessor’s website.

On these sites, you will want to look for ads from the owners themselves.  All REATORS® are required to disclose they are a REALTOR® and the office they are working.  Only call non-REALTOR® ads.

For an Individual or Couple

If the place is only for yourself then you may want to take a look at places looking for a room to rent.  You can also find these on CraigsList but there are other sites like Roomster which are looking for roommates only.

Your local newspaper is another source plus the free weekly ones as well.

Other sources could be in the breakroom at your job.  Many larger companies have a board where the employees can advertise things like a place to share or rent.

Another technique is to have someone you know and trust to be a co-signer on the application.  Thus, they would be responsible if you were to miss a payment.   I only advise you to do this if you are quite sure you will be fine as you don’t want to burn that bridge if something were to happen.


Conclusion

There are a number of things that you can do if you have poor credit and are in need of finding a new place to live.  You just have to be open to other possibilities.  If you have money but poor credit then that is the easiest solution.  If you have no money and poor credit then you will have to do something a bit creative and outside the normal way of doing things.

 

 

 

 

 

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Kevin A Dunlap

Kevin Dunlap is an author, podcaster, speaker and a licensed Nevada REALTOR® since September 2012. He has been involved in real estate since buying his first investment property in February 2002. He has also owned two small apartment complexes. He has specialties in creative real estate deals such as lease options and seller financing, as well as the normal purchase or sale of homes, condos, and townhouses. Kevin also has a team to help people who are employed in the Cannabis industry to buy homes, too.

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