Nearly 31% of U.S. renters have credit scores under 620 (which suggests late payments and a heavy debt load). For landlords, this can make finding reliable tenants feel risky.
However, bad credit doesn’t always mean bad tenants—some applicants might have a strong income or a solid rental history despite a low score.
Use tenant screening, lease adjustments, and financial safeguards like co-signers or upfront payments to protect yourself. Let’s explore how to evaluate tenant applicants with bad credit while minimizing your risks.
Key takeaways:
- Tenants with bad credit may still be a good fit if they have stable income, valid reasons for poor credit, and a positive rental history.
- Reasons not to rent to tenants with bad credit include multiple evictions, high debt, unverifiable income, recent bankruptcies, or no additional safeguards like a co-signer or upfront payments.
- To legally deny a tenant with bad credit, provide a written Adverse Action Notice, explain the denial reasons, include credit agency details, and maintain consistent, non-discriminatory screening criteria.
- To minimize risks and protect yourself with tenant applicant with bad credit, request safeguards like a co-signer, a larger security deposit, or upfront rent payments.
- Conduct thorough tenant screenings, including credit, rental, eviction, and criminal history, to assess reliability and enhance landlord protection against tenants with bad credit.
What is bad credit?
A credit score below 620 signals bad credit to rent a house or apartment. Approximately 16% of Americans fall into this category due to challenges with meeting financial obligations. This can include missed payments, high debt utilization, or accounts in collections, which are common red flags for landlords.
Key indicators of bad credit include:
- Missed payments: Late or skipped payments—especially those overdue by 30 days or more—can significantly reduce credit scores. For instance, missing three consecutive $200 payments could drop a tenant’s score by 90–110 points. Payment history makes up 35%-41% of a credit score, making it a crucial factor.
- High credit utilization: Consistently using more than 30% of available credit indicates financial strain. For example, a tenant with a $10,000 credit limit and a $4,000 balance has a 40% utilization rate, which may suggest difficulty managing additional expenses like rent.
- Accounts in collections: Unpaid debts, such as a $1,500 medical bill or a $2,000 credit card balance sent to collections, remain on credit reports for up to seven years, signaling long-term financial issues.
Why does credit matter for landlords?
A tenant’s credit history provides a snapshot of their financial reliability, helping you avoid problems like missed rent payments or costly evictions.
Here’s why it’s important:
- Payment reliability: Tenants with strong credit histories demonstrate consistent financial responsibility. For example, someone with a 750 credit score who has paid off loans and credit cards on time for years is a low-risk renter. On the other hand, frequent late payments (e.g., 30 or 60-day delinquencies) indicate a higher risk of rent defaults.
- Debt management: A low debt-to-income ratio (DTI) and responsible credit use show tenants can manage financial obligations. For example, a tenant earning $5,000 per month with total monthly debts of $1,500 has a 30% DTI, indicating financial stability. In contrast, a tenant with $3,500 in monthly debt (70% DTI) may struggle to afford rent.
- Financial stability: Bankruptcies, tax liens, and civil judgments on a credit report can indicate a history of financial issues. For example, a tenant with a recent bankruptcy or multiple unpaid debts may pose a risk of paying rent late (or not at all).
Should landlords rent to a tenant with bad credit?
Renting to a tenant with bad credit may help you fill a vacancy quickly, but there are risks to consider—missed payments, costly evictions, or property damage.
Understand the risks of renting to tenants with bad credit
- Late payments: A history of missed or late payments on a credit report may indicate a higher risk of delayed rent, which can impact cash flow—especially if rental income covers mortgage or property expenses. Review the full credit history, including past rent payments, to get a clearer picture of reliability.
- Costly evictions: Evictions can cost landlords an average of $3,500 and take months to resolve. In extreme cases, they can cost significantly more. For example, a Los Angeles landlord spent three years and over $200,000 to evict a tenant who stopped paying rent.
- High turnover: Financially strained tenants may struggle to fulfill their lease terms, leading to early termination and increased vacancy costs. This can result in additional expenses for marketing, tenant screening, and property maintenance between leases.
- Property damage: Tenants who have a history of neglecting financial responsibilities might also neglect property maintenance, leading to costly repairs. For instance, if a tenant fails to report leaks, the damage could worsen, requiring expensive fixes.
Assess the tenant’s situation
Not all bad credit is the same. Here’s what to evaluate before deciding:
- Reason for poor credit score: Not all bad credit is the same. A tenant may have a low score due to medical debts or student loans rather than a pattern of missed payments. If the tenant has a strong overall credit history and a valid explanation, like medical expenses or student debt, combined with a recovery plan, they may still be a good choice.
- Recent financial behavior: Focus on the last 6–12 months. Are they paying bills on time and reducing debt? Recent financial improvements can signal growing stability.
- Debt-to-income ratio (DTI): Calculate the tenant’s DTI by dividing their total monthly debt payments by gross monthly income. A DTI below 36% is ideal, while over 43% indicates financial strain.
How to protect yourself as a landlord when renting to tenants with bad credit
Here’s how to protect your investments while renting to tenants with poor credit.
1. Perform thorough tenant screening
Use Baselane’s tenant screening service to assess credit reports, eviction history, criminal records, income verification, and more—all in one place. These reports provide detailed financial insights, helping you identify potential risks upfront.
Tip: Look for red flags like missed payments, high debt-to-income ratios, or accounts in collections. Ask tenant screening questions to get more context on financial stability.
Comprehensive reports you can trust, delivered in minutes.
2. Check rental history
Review past rent payments, eviction records, and landlord references to assess reliability. A tenant with a history of on-time payments is likely more reliable than one with late or past evictions.
3. Request upfront payments
If allowed by state laws, ask for a higher security deposit or collect the first and last month’s rent upfront for added protection. Some states have limits—California caps security deposits at one month’s rent, while Texas has no state-imposed cap.
4. Require a co-signer or guarantor
Requiring a co-signer can provide additional security when adding someone to a lease with bad credit. Ask tenants with bad credit to provide a co-signer with strong credit and stable income, and be sure to screen them or verify their income at the very least to confirm financial reliability.
5. Verify income
Ensure tenants earn three times the rent through pay stubs or tax returns. For example, if rent is $1,500, the tenant’s income should be at least $4,500/month. Be aware that self-reported documents can be falsified; 29% of rental applications are estimated to contain fraudulent information.
To mitigate this risk, use Baselane’s tenant screening service, which offers bank-verified income data for more reliable verification.
6. Start with a short-term lease
Offer a month-to-month or six-month lease to evaluate tenant reliability before committing to a long-term lease. Review local regulations for ending a tenancy before signing a short-term lease just in case it doesn’t work out. Some states have strict rules—for example, Delaware requires 60 days’ notice to end a month-to-month lease.
Short-term leases also help protect you from squatters by keeping the unit occupied. In states like New York, squatters can claim property rights after 30 days through adverse possession. If a tenant stays past their lease, you must follow formal procedures for how to evict a squatter—changing locks or shutting off utilities can get you into legal trouble.
7. Offer flexible payment options
Accepting multiple payment methods gives tenants more flexibility in case they need to change how they pay or split rent between two methods to stay on track. A survey from the National Multifamily Housing Council (NMHC) found that 80% of tenants prefer digital rent payments, including options such as credit cards, debit cards, and direct bank transfers. These payment methods are considered more convenient and easier to manage for tenants compared to traditional checks or cash.
8. Use automatic rent payments
Making auto-pay an option for online rent payments is a simple way to reduce late payments and save yourself the hassle of chasing tenants around every month. Baselane rent collection lets tenants set up recurring payments via ACH or card.
If they ever need to use a check, you can simply snap a picture to deposit it on your mobile device instead of making a trip to the bank. Plus, Baselane automatically sends rent reminders and charges late fees to help you get paid on time.
9. Require renters insurance
While renters insurance isn’t mandatory in most states, landlords can include it as a lease requirement. Renters insurance can protect both parties from potential damages and expenses.
For instance, if a tenant’s appliance causes water damage, their insurance can cover the repair costs. On average, renters insurance costs around $12 per month, varying by location.
10. Define clear lease terms
Clearly define your rent payment policies in the lease agreement. Specify due dates, late fees, and grace periods to prevent misunderstandings. For example, state that rent is due on the 1st of each month, with a $50 late fee applied if not received by the 5th.
Clarify whether rent is considered paid upon initiation, withdrawal, deposit, or clearance of funds. Discuss these terms with tenants to ensure mutual understanding and avoid disputes.
11. Monitor tenant payment history
Track rent payments regularly and request a new credit report before renewing a lease. If tenants show improvement, consider easing up on strict lease terms. The best way to collect rent and track payments is an online platform designed for landlords like Baselane.
Unlike rent payment apps that make you search through transactions to find rent payment history, Baselane automatically tracks payments and tags transactions to each tenant and property—giving real-time payment insights without any extra work.
12. Conduct routine inspections
Schedule regular inspections to address maintenance issues early and ensure your tenant is meeting their legal obligations for maintaining the property. For instance, Florida’s landlord-tenant laws hold tenants responsible for:
- Complying with all building, housing, and health codes.
- Keeping the dwelling clean and sanitary.
- Removing garbage in a clean and sanitary manner.
- Keeping plumbing fixtures clean and in good repair.
- Not destroying, defacing, damaging, impairing, or removing any part of the premises or property belonging to the landlord.
- Responsibly using and operating electrical, plumbing, sanitary, heating, ventilating, air-conditioning, and other facilities and appliances, including elevators.
Make sure you give tenants notice in advance before entering rental units. Most states require at least 24 hours’ landlord notice to enter. Use an apartment maintenance checklist so you don’t miss anything.
13. Avoid over-leveraging your portfolio
Limit the number of high-risk tenants in your properties. For example, if 20% of tenants have bad credit, ensure the remaining 80% demonstrate financial stability. This approach ensures that the potential financial losses from tenants who might default on rent are offset by the reliable income from the majority of tenants who exhibit a strong track record of paying rent on time.
14. Get rent payment insurance
Rent guarantee insurance covers missed rent payments if a tenant defaults and may include coverage for legal fees if you pursue eviction. Policies typically cost 5–7% of annual rent—for a $24,000 yearly rent, that’s $1,200–$1,680. Coverage varies, so review policy terms before choosing a provider.
15. Use a professional property management company
While knowing how to deal with a bad tenant on your own is important, sometimes it’s not always the best course of action. A property management company can assist with maintenance coordination and lease enforcement for landlords managing multiple properties or handling high-risk tenants and evictions.
16. Establish a clear eviction policy
Detail the eviction process in your lease agreement. Specify timelines for warnings and legal actions to avoid disputes. Check local laws to ensure you’re following the proper notice periods for non-payment and evictions.
In California, tenants have a 7-day grace period before rent is considered late and must be provided a notice to pay or quit giving them 10 days to pay rent in full before you start the eviction process.
17. Use a rent reporting service
Consider using a rent reporting service to help tenants build credit by reporting their on-time rent payments to credit bureaus. This motivates tenants to pay on time to improve their credit scores, helping both you and the tenant in the long run.
A TransUnion survey found that 85% of tenants are more likely to pay rent on time if their payments are reported to credit bureaus. Baselane makes it easy for tenants to sign up for reporting their rent payments to all three major U.S. credit bureaus—Equifax, TransUnion, and Experian.
When to deny a tenant with bad credit
Not all tenants with bad credit are the same, but in some cases, denying an applicant may be the best decision to protect your rental income. Here are the reasons a landlord can refuse to rent to a tenant with bad credit:
- History of late or missed rent payments: Tenants with repeated late or missed payments pose a financial risk.
- Significant unpaid debts: Unpaid debts, especially those related to previous rentals, increase the likelihood of non-payment.
- Eviction history: Tenants with prior evictions—particularly for non-payment—are high-risk. Use tenant screening services to check for eviction records.
- High debt-to-income ratio (DTI): A DTI above 40% indicates a tenant may struggle to pay rent.
- Recent bankruptcies: While past bankruptcies may not be a deal-breaker, multiple or recent filings increase the risk of default.
- Incomplete or fraudulent applications: Applications with missing or falsified details—such as incorrect employment history—are red flags. 84% of property managers have encountered fake pay stubs or falsified employment details. Learn how to run a credit check on a tenant to verify financial reliability.
- Negative references from previous landlords: Poor feedback from past landlords—such as reports of late payments or property damage—can signal future problems.
- Unpaid utility bills: Significant outstanding utility bills suggest a broader pattern of non-payment that could extend to rent obligations.
How to legally deny a tenant with bad credit
Denying a tenant with bad credit requires adherence to U.S. laws to ensure compliance and avoid legal disputes.
Here’s how to protect yourself as a landlord while remaining compliant.
- Provide written notice: Issue an Adverse Action Notice under the Fair Credit Reporting Act (FCRA) when rejecting applicants because of their credit report. The notice must include:
- Specific reasons for denial: Clearly state why the application was rejected (e.g., low credit score for renting, negative rental references).
- Credit reporting agency details: Provide the name, address, and contact information of the credit reporting agency used.
- Applicant rights: Inform applicants they can request a free copy of their report and dispute inaccuracies.
- Focus on legitimate financial concerns: Base your decision solely on measurable financial factors like:
- Credit history: Scores below your threshold (e.g., 620) or frequent late payments.
- Income verification: Tenants should earn three times the rent.
- Rental references: Negative feedback, such as property damage, is a valid reason.
- Use consistent screening criteria: Set clear, written standards for a minimum credit score for renting, income requirements, and references. Evaluate all applicants uniformly to avoid discrimination.
- Document the reasons for denial: Maintain detailed records, including credit reports, rental applications, and communication logs. This demonstrates compliance with laws like the Fair Housing Act (FHA) and FCRA.
Is it worth renting to a tenant with bad credit?
Renting to a tenant with bad credit depends on their financial situation and your ability to mitigate risks.
When it might be worth it
- Tenants with a low credit score can still afford rent if they have stable employment and a steady income, earning at least three times the rent.
- A co-signer or guarantor with strong credit adds security by sharing financial responsibility if the tenant defaults.
- Valid explanations for bad credit, such as medical bills, divorce, and recent financial recovery (e.g., reduced debt or consistent payments), can indicate improved stability.
- Positive rental history, verified with previous landlords, demonstrates reliability even if credit is poor.
- Upfront payments, like several months of rent or a higher security deposit, reduce immediate financial risk.
When it’s not worth it
- Multiple evictions or unpaid rent suggest a pattern of unreliability and increased risk of defaults.
- Credit reports showing high debt utilization or unresolved debts indicate poor financial management.
- Inadequate or unverifiable income that doesn’t meet your requirements makes rent unaffordable.
- A lack of additional safeguards, like a co-signer or upfront payments, leaves you to deal with non-payment risks.
- Recent bankruptcies without signs of financial improvement reflect ongoing instability.
Find great tenants and manage your rentals—all in one place
Protecting your property starts with finding reliable tenants. Baselane makes this easier with comprehensive and free tenant screening for landlords, providing instant access to credit reports, rental and eviction history, income verification, criminal background checks, and more.
With Baselane, you’ll have everything you need to make confident leasing decisions and manage your rentals—from leases and rent collection to security deposit accounts and expense tracking—all in one place.
Ready for a free screening process that actually works? Get started for free.
FAQs
What is a bad credit score for renting?
A bad credit score for renting is generally considered to be below 580, indicating potential financial struggles. Scores between 580 and 669 are viewed as fair and may require additional evaluation. Landlords should assess the entire credit report, including payment history and debt levels, to make informed decisions.
What is a good credit score for renting?
A good credit score for renting usually falls between 670 and 739 or higher. These scores suggest financial stability, consistent payments, and a lower risk of rent defaults, making tenants more appealing to landlords. Use tenant screening services to verify credit and rental history effectively.
Does a lease protect the tenant or landlord?
A lease protects both parties by defining responsibilities, payment terms, and property use. For landlords, it ensures legal backing to enforce rent collection and handle disputes. For tenants, a lease offers protection from arbitrary rent increases or eviction during the lease term as long as they adhere to the terms and conditions of the agreement.
Learn how to attract tenants who align with your lease terms.
What do landlords look for in a credit check?
Landlords typically review a tenant’s payment history, debt-to-income ratio, and accounts in collections during a credit check. A strong credit report shows a history of on-time payments and manageable debt, while missed payments or high debt levels may indicate financial risk.
Learn more about what landlords look for in a credit check before approving a tenant.
Can a landlord deny you for bad credit?
Yes, a landlord can deny a rental application based on bad credit if it indicates a financial risk, such as missed payments or high debt. However, the landlord must follow legal guidelines, including providing an Adverse Action Notice under the Fair Credit Reporting Act (FCRA).
How to read a credit report?
Here are the basics of how to read a credit report:
- Personal information: For accuracy, verify the tenant’s name, address, and Social Security number.
- Credit summary: Review total accounts, balances, and credit utilization.
- Payment history: Look for late payments, defaults, or consistent on-time payments.
- Public records: Check for bankruptcies, liens, or legal judgments.
- Inquiries: Review recent credit inquiries to assess new credit activity.
Is rental history important for landlords?
Yes, a tenant’s rental history is important because it reflects their ability to pay rent on time, follow lease terms, and maintain the property. A history of consistent payments and positive landlord references can indicate a reliable tenant, while past evictions or frequent late payments may be a red flag.
Learn more about why rental history is important and how it impacts tenant screening.
