Richard Vierra (B), RMP
<B>Q. I have an application from a prospective tenant for a home I rent out. He supplied a credit report that shows his credit is not very good. He is self employed and said he had some problems last year because clients didn’t pay him. He says his income is stable now and that he is a very responsible business owner. I am hesitant to rent to him but he insists that if he can give me the deposit and first month’s rent I have no reason not to rent to him. Can you give me some advice please?</B>
A. This, a potential tenant with marginal credit anxious to get into a rental unit, is a common occurrence in the rental marketplace and one that we see more often in a down or difficult economy. There are two important questions worth examining in this case.
First, it is always a bad sign when the business owner is unable to collect on accounts receivable. In your case, the potential tenant indicated that his business problems were caused by clients who didn’t pay, but that currently his income is more stable and he is a very responsible business owner.
A seasoned landlord might question what constitutes “income being more stable” and what the criteria are for being “a very responsible business owner.” In examining these statements, you would want to consider how long the potential tenant has been in business, what his investment and participation in the business is, and what changes has he made to collect payments more regularly. In other words, what has changed to ensure that previous failures won’t be repeated again?
Second, and what should be considered for every potential tenant, is the review of his credit history. In this case, the potential tenant has supplied his credit score which admittedly is not very good. Although he has a valid reason to justify his low score, it is still a low score and may be a concern if the root problem (the manner in which he is doing business) is not addressed. In the potential tenant’s defense, credit scores often reflect older information and circumstances may have changed.
It is advisable to do several levels of tenant screening, and many are available online or through various service organizations. A landlord should always review a rental applicant’s credit report, a police criminal report, a sex offender report, previous landlord references, or a financial report made up of employment references and/or check stubs. It is important, however, that the process be applied to all potential tenants, and not just some.
Doing tenant screenings helps the landlord see beyond the initial presentation of the applicant in a fair, unbiased, third-person format, which is consistent in viewing all applicants in the same light. Anything less opens the door to discrimination and unfair housing charges which can lead to lengthy litigation, lost rental income, and fines and penalties.
In your case, as in all cases, a landlord has a right to not consider the ability to pay a security deposit and first month’s rent as the entire and only means of qualifying a tenant. Additionally, a landlord can review as many screening methods as are available, as long as they are applied equally and fairly to all potential tenants.