Should I Consider An Applicant With No Credit History?

As a member of the support team here at Rent Application, and the older brother of a renter in her twenties with very limited credit history, I know first hand the difficulties created for both landlords and applicants in handling the “no credit history” situation when applying for a rental property.

Credit history can be a fast, convenient way to gauge someone’s historical ability to pay bills. However, the lack of credit history should not be equated to a lack of financial responsibility, There are many legitimate reasons an applicant’s credit history may lack information. If one of these situations applies, there are other mechanisms that can help gauge the financial capabilities of the applicant.

Legitimate Reasons To Lack Credit

There are legitimate reasons an applicant may lack credit history. According to the Consumer Financial Protection Bureau, more than 50 million adults had no credit score at all in 2015. Of this group, roughly 26 million Americans are credit invisible, meaning they have no credit history with a nationwide consumer reporting agency. An additional 19 million Americans have credit history that has gone stale or is insufficient to produce a score. This is a large swath of the American public which means landlords should have a plan in place to fairly consider these applicants.

Alternatives to Credit Reports

Whether someone is a college graduate looking for their first apartment or a senior downsizing from a (paid off) home to a rental, having a set process to handle applicants without credit is important.

Use Supporting Documents

Most rental applications include a request for a W-2, a few recent pay-stubs, and bank statements. These documents can tell you about the financial strength and habits of your applicant.

Bank Statements tell their own story
  • Scan the bank statements for payments to the current landlord:
    • Are the current rental payments being made on time?
    • How much is the applicant currently paying? (This can help determine if they are already handling rent responsibly)
  • Are there overdraft fees?
  • What’s the beginning and ending balance each month?
  • Are there a large number of recurring payments that will compete with your rent payments?
Talk to references - especially current and previous landlords
  • The current and previous landlord reference can be a critical resource in learning about the type of tenant you may be considering.
  • Previous and current landlords can attest to an applicant’s ability to pay rent on time, as well as their general demeanor as a tenant.
Verify Employment
  • Does the bank statement deposit amount and the pay-stub(s) match the salary information entered on the rental application?
  • Use an employment verification service to verify the details of employment.
  • Employer verification calls can confirm an applicant’s ability to maintain employment and meet rent requirements.
Consider other forms of financial information
  • Applicants - especially retirees - may not have pay-stubs and rely on savings and retirement accounts. It’s reasonable to request to verify stock account balances, other bank accounts, and/or a statement from a pension to verify the ability to pay.

Set a process to avoid “winging it”

The National Apartment Association reports that 29% of the US rental market falls in the “Starting-Out Singles” demographic, renters with an average age of 26, limited income, and often little to no credit history. Create a standardized process to handle these renters to ensure that you can quickly and fairly evaluate their tenancy. Establishing the process in advance helps landlords stay fair and helps set expectations for applicants on the types of information needed. This helps both the landlord and the applicant be prepared for the application and evaluation process.

Rent Application provides all of the tools that a landlord needs to collect the application and supporting documents quickly and securely from an applicant. Build an application with the screening and verifications you need - easily.

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