Your credit score can affect many different aspects of your life. Good credit is generally required for large expenditures or investments like a car lease or purchase, a house purchase, or a property rental. Credit history is an easy way for dealerships, realtors, or landlords to know how you’ve handled large financial responsibilities in the past and whether you’re financially trustworthy.
As a landlord, collecting credit information from potential renters is an important part of the application process. Though some landlords will accept credit scores within a larger range than others, most landlords prefer a credit score that’s ranked as “good” or “fair” at the very least by major credit reporting companies.
Receiving a wide range of credit scores from your tenant applicants is a normal part of being a landlord. However, what if you receive an application from a potential renter who doesn’t have any credit history at all? This condition can be the norm for a variety of people, including very young adults who are new to financial independence and older individuals who have never used credit.
Is No Credit the Same as Bad Credit?
Renters with no credit history and those with bad credit history are often lumped into the same category when applying to rent properties. As a landlord, however, the distinction between the two is important to consider.
A rental applicant with bad credit has a recorded history of financial mistakes, which is exactly what led to their low credit score.
Conversely, renters with no credit history may not have official proof of financial responsibility, but they have no record of financial mistakes either. This difference means that tenants with no credit are usually considered less risky than tenants with poor credit.
How to Approach Potential Renters with No Credit History
A lack of credit history shouldn’t immediately disqualify a rental applicant. However, you should proceed with caution in order to protect your assets as a landlord and make sure the potential tenant is worth the risk.
Ask About Their Lack of Credit
If a rental applicant has no credit to show, it’s well within your rights as a landlord to ask them why. The most common reason for an individual to have no credit is due to age and lack of experience with financial independence, but there may be a different reason that your applicant has no credit report to show.
If your applicant seems uncomfortable discussing their lack of credit or declines to explain their situation, they likely aren’t an ideal tenant to rent to as they might cause financial issues for you in the future.
Find a Way to Mitigate Risk
The function of a credit score in the property rental process is to make landlords aware of the potential risk they’re taking on with a given tenant.
Without a credit score, there are still many other ways to mitigate your own financial risk as the property owner. You can charge a larger security deposit, require a cosigner, or use a prospective roommate’s credit report to make your decision.
Collect as Many References as Possible
Another way to reduce your risk when you’re considering renters with no credit history is to take full advantage of the references they provide. This approach will help you get a clearer picture of their trustworthiness even if you don’t have a credit score to check.
If your potential renter doesn’t have any credit, they likely don’t have any previous landlords to list as a reference. Other worthwhile references to check can include bosses, supervisors, professors, and even bank statements.
Gauge Their Interest in the Property
If they understand how property rental works, potential renters with no credit history should understand that any landlord choosing to rent to them is taking a risk that many landlords would choose not to take.
Therefore, renters with no credit history who are worth the risk will try to do everything in their power to show proof of their trustworthiness.
If your potential renter has poor communication skills, isn’t forthcoming with their reason for having no credit, doesn’t do their best to provide additional references for you, and refuses a higher security deposit or cosigners, they likely aren’t worth the financial risk and could end up causing issues for you during your lease agreement.