Poor Credit Doesn’t Pay the Mortgage

To follow up on our sub-prime meltdown, we’ve had other opportunities to learn the lesson that people with bad credit often don’t pay their bills.

Back in 2004 we bought a place in a transitional neighborhood here in DC and flipped it six months later. During this time we had a renter with very poor credit who was quite delinquent with payments. DC housing laws are very favorable to the renter, and thus it didn’t matter if she had a cable dish that was somehow afforded above rent. This just goes to show that credit history makes a world of difference. We know there are those who manage to turn themselves around, but it might not always be best to risk your finances on these individuals.

Our advice to folks who are dealing with rental properties, it pays to go with those who have good credit history and references. Certainly this isn’t a rock solid way to determine if your rent will be paid on time, but it is a pretty good indication.

Also, what you see isn’t what always what you get. A few months back I was advising a friend who was just starting out renting her place. She hadn’t considered doing a credit check, saying that her applicants looked fine. After our experiences I was a strong advocate for checking someones credit score and references. For instance I recall that we had checked this renter’s references but those alone didn’t reveal how financially unstable she was. The credit check really provided the best and most reliable information. We may have wanted to give our tenant the benefit of the doubt as a single mother with two kids, but we learned the hard way that a pleasant appearance and even references don’t always say much about creditworthiness. You really need a combination of both to determine if someone should rent your property.

Best,

Miel