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Screening Tenants with No Credit History

Commonly referred to as “no hit” or “no record,” this is when the credit bureaus do not have any information on file for your applicant. Don’t be alarmed though, because a person can have no credit history for any of the following reasons:

  • They have never bothered to apply for credit (no credit cards, car loans, mortgages, etc.); their money is basically kept under the mattress.
  • They are a young adult, perhaps fresh out of school.
  • The information that was inputted into the credit system to request a report was mistakenly transposed, either because of human error or because the hand-written application was indecipherable or unintentionally inaccurate. [For example: “Kristine Petelle” was actually typed in as “Christine Patel,” causing the credit bureau to find no record.]
  • The applicant is intentionally trying to deceive you.

With all these different types of possible scenarios, you can see how you don’t want to rush to judgment and accuse your applicant of doing something wrong, when – in all likelihood – it’s either because they honestly don’t have credit or there was an innocent case of human error. As stated in an earlier article, Always Ask a Tenant for Proper Identification, it’s pretty easy to eliminate the last possible reason merely by asking to see a driver’s license and social security card.

If the resulting record was eventually determined not to be human error and is a legitimate record of no credit history, then you should take the following steps:

  • Ask the applicant if they have a personal checking or savings account, so you can contact the bank for a reference. If you have used an appropriate rental application, most banks will accept this as an authorization to verify such things as the average daily collected balance, current ledger balance and whether or not there were any bounced checks (NSF’s) within the last six to twelve months.
  • Ask the applicant for utility and any other statements that may show a positive payment history.
  • Ask the applicant if they know someone (with a good credit rating) that would be willing to cosign and guarantee the lease.

It’s certainly not an easy task to overcome a lack of credit history, but, if you dig deep enough, you should be able to make a decision that you’re ultimately comfortable with, regardless of the outcome. The burden of proof rests on the prospective tenant to bring forth evidence that supports they are a good credit risk. This is not your responsibility, but if you want to appear accommodating, the best way is to offer as many alternatives for supporting documentation as you are willing to accept. Then set a reasonable deadline, hope for the best and be sure never to turn down a back-up application from another interested party.