Landlords preference: good credit with BK, or lower credit but no BK on your record?

[nozar]

Say you want to maximize your chances of renting an apartment from a landlord in 6 months from now, and need to decide between filing for bankruptcy and settling the debts. Your credit score right now is a bit below 500.

Option A: You settle your debts individually with the creditors and pay them in full with a family loan, which you'll repay separately over time. You'll have a low credit score for a while (how long?), but no bankruptcy on your record.

Option B: You file for Chapter 7. Reportedly, in 2 years you'll have a credit score back in 700s, but in 6 months, it'll probably still be in the 500s? Maybe high 500s, maybe low 600s, but you'll have a bankruptcy on your record.

Does anyone know which option landlords typically prefer?

Does it depend on the city? For example, I've heard that New York landlords require way more paperwork than San Jose ones.

[justbroke]

As a former landlord, I went entirely by a.) an approve/reject from SafeRent/MyRental (CoreLogic), b.) score above 620 -- according to SafeRent/MyRental, and c.) stable regular income at least 3-3.5X the rent.

That last one is just as important as the first one. There are landlords here in Florida now requiring 4X the rent and a score of at least 700 for the really good properties, with 1-2 month deposits to boot (depending on score). That's for private landlords.

The big apartment and community managers will do 620+ but still want 3-3.5X the rent, and a very stable job. Absolutely no evictions. All the major managers that I have dealt with say 2-years since discharge, but they use CoreLogic so it's really 2-years since filing. I got into 2 different major communities with a 640 score and paid only a $300 deposit on a $2,200/month unit. I think they like job stability and $$$ (the more the multiplier for the rent, the better. Mine is usually a minimum of 6-9X the rent when I did rent).

Just the nature of the market, but I always had those requirements for my rentals. Income is the key factor and credit score is just a good predictor based on past performance (credit).

I'd rather have someone who is 1-year+ out of bankruptcy with a very stable job (2+ years at same employer), 4X+ the rent (although I only required 3X, I like to see that the rent is not a 33% of their income), and score above 620 (there's something magic about 620 as the basic minimum).

But, that's me, as a landlord and as a tenant.

[nozar]

I wonder why these requirements exist in the US. By comparison, in Europe or pretty much anywhere else, a renter only needs to give the landlord the first month of rent, and a security deposit worth 1 or 2 months.

What would you say to a renter who doesn't have a very stable job, but makes good irregular income (freelancer, consultant, trader etc.), or is retired, but in either case, who can show proof of funds 12X the rent, i.e. is able to cover a year of rent?

[justbroke]

I wonder why these requirements exist in the US. By comparison, in Europe or pretty much anywhere else, a renter only needs to give the landlord the first month of rent, and a security deposit worth 1 or 2 months.

Tort law, although much of it comes from British Common law. We give the tenant so much deference in the United States that contract law (the lease) prevails. In the UK, for example, you could potentially evict a tenant in 2-6 weeks (with 6 weeks being the more difficult tenant). In the United States, people learned to game the system and know just what to do to stay 6 months or more (squatters).

What would you say to a renter who doesn't have a very stable job, but makes good irregular income (freelancer, consultant, trader etc.), or is retired, but in either case, who can show proof of funds 12X the rent, i.e. is able to cover a year of rent?

First, a retiree has retirement income (SSA, pension, etc) and would have "regular" income. A stable job to me would be that they are employed by a third-party and have consistent pay over last 60-days. The credit score will weigh more if they are freelancer, consultant or trader. Would likely want at least last year's W-2/1099 to prove income over a more stable period of time.

Income stability matters, and without demonstrating that ability, some landlords want the tenant to show 12-months of reserves in a bank account. That means, for a $2,000/month lease, at least $60,000 proven funds in the bank (doesn't have to be liquid, such as stocks/bonds). You wonder why $60K, well take the $2,000 and divide by 40% and you get $5,000/month. While 30-33% is the maximum that anyone should ever spend on housing, a retired person likely doesn't have the same tax burden, so 40% is a good maximum housing burden. So that's how you get how much you need to "live". (Some may use a different formula or percentage.)

At least, in the circles I have been, that's what you want. Under State and local law on tenancies/leases, you may not be able to take more than 1X or 2X deposit. Be careful with prepaid rents as that can get you into squatting issues.

In the end, it's about risk. I would say that the U.S. housing market is stronger than just about anywhere on the planet and landlords can be choosy about their tenants (so long as it meets the law and there is no discriminatory measures).

(There was a time when leasing and renting in the U.S. more mirrored our other Western friends. But litigation and then the law, actually trying to protect the tenant, made it more complex and cumbersome. Any willing landlord can use any system that they want, so long as they adhere to local, county, State, and Federal rules for landlords.)

[nozar]

Thank you for the detailed reply justbroke.

Two thoughts:

Co-signer: I've just learned that one method to secure a rental with bad credit, is to get a co-signer (e.g. a family member) with good credit. How would that influence a landlord's decision to rent to an applicant with poor credit, but excellent credit for 10+ years before Covid?

Bankruptcy vs. years of missed payments: say I have two years of missed payments, then I resume payments. Which would look less bad on a credit check, the missed payments, or the bankruptcy?

[justbroke]

Co-signer: I've just learned that one method to secure a rental with bad credit, is to get a co-signer (e.g. a family member) with good credit. How would that influence a landlord's decision to rent to an applicant with poor credit, but excellent credit for 10+ years before Covid?

I call these mitigating factors. For a co-signer is can also be complex. If they are a non-occupying co-signer I like to call that a guarantor. For a guarantor I'm going to want to factor in that they make 4X the rent, rather than 2-3X the rent. Why? because the guarantor has other obligations and since they are a non-occupying "non-tenant" want to make sure that it works. I have guaranteed rentals for family many many times (including last year).

Bankruptcy vs. years of missed payments: say I have two years of missed payments, then I resume payments. Which would look less bad on a credit check, the missed payments, or the bankruptcy?

Personally, I used SafeRent and have used LexisNexis for screening. I prefer how those services score the potential renter. If they score an "A" then they're okay with me. For what it's worth, I scored an "A" when I rented an apartment just over 2 years ago while in my Chapter 13. I had a rental score of 650 at the time. I had significant income (major factor). I had an open/active Chapter 13 but they didn't care. They looked at how LexisNexis scored me.

What I'm trying to say is that these new risk-based systems look a lot at the score first. Hardly any major/savvy (corporate manager) landlord looks at the detailed credit report. The score tells a lot about recency of events, the severity of the most recent event, and how that person compares to others (bucketing). I think the risk-based scoring is better because it literally "hid" the Chapter 13 from the managing company. I paid the minimum deposit ($350) on a $2,200month apartment. I was considered a prime renter.

Now, to answer this question directly, the 2 years of payments will be worse. The bankruptcy will clean up things and you could get bucketed into a group that has 620+ scores!

[bornfree2]

Me personally i will choose bankruptcy clearing out ALL my debts over a silly credit score. Why? - because cash is king. Why keep on paying a creditor when i can pocket the money for myself month after month..and build up my cash reserves not the bankers.

During my default period my score went from the 700s to low 500's. The moment i filed, it went up to 570. After my discharge its at 610. I now have 'poor' credit according to them. So it wasnt as drastic as the propaganda out there was selling.

What do i need credit for anyways? Well perhaps to rent. Okay. so im i going to live in fear that some landlord wont rent to me because of my score or bk history?? Not really cause i know money talks. I dont think a landlord is going to turn me down offering a bit more of a deposit to close a deal with them. And if they do... so what...there are many more landlords out there.

So my own plan is to just focus on increasing my skills and therefore income and building up my cash reserves again. Ive always been a saver. Its the only way i was able to survive 2+ years without a job. The default and bankruptcy was the best thing i have done for my finances period. I dont give a damn about the score or getting new credit. The only thing that matters is CASH ON HAND and striving each week to increase my skills. I can now chase opportunities with optimism rather than live like a debt slave which i was for decades without realizing it.

On top of that, the scoring companies can change the rules at any time. Imagine there was a mass movement of bankruptcy. Do you think the banksters wouldnt act quickly to dissuade people from filing if they recalibrated the scores to severely punish those that have a bk on their record?

Of course they would. The 'means test' was lobbied by them to make it harder for people to get out of debt bondage. And that required many attempts to get congress to do it until George W Bush handed it to them. Imagine what the unregulated 'big 3' scoring agencies can do at any time. Move the goal posts and change their 'secret sauce algorithms' at any time.

Credit scoring is used as a tool of oppression. Bankruptcy is a constitutional right and the path to freedom that they hate.

Me after my discharge to the banksters -> https://www.youtube.com/watch?v=M5QGkOGZubQ

[nozar]

Well said bornfree2 !

I did see though many pigheaded stubborn narrow-minded landlords who rejected my offering to pay upfront SIX MONTHS of rent for a 6-month contract, beause of my credit score. They were overwhelmingly Asian women - maybe there's a cultural value to the credit score?

[Carmella]

Thank you for the detailed reply justbroke.

Two thoughts:

Co-signer: I've just learned that one method to secure a rental with bad credit, is to get a co-signer (e.g. a family member) with good credit. How would that influence a landlord's decision to rent to an applicant with poor credit, but excellent credit for 10+ years before Covid?

Bankruptcy vs. years of missed payments: say I have two years of missed payments, then I resume payments. Which would look less bad on a credit check, the missed payments, or the bankruptcy?

When my daughter was applying for her first apartment her income barely made the cut off. I forget the amount of income vs the rent. I was with her and the lady asked me about cosigning if she did not have enough income of course I would be responsible if she defaulted on the rent. One thing she mentioned was credit score and BK. She didn't say it directed at me, but kind of blanket statement listing the qualifications for a cosigner. I told her I wasn't eligible to be a cosigner (not giving a reason) and that's when she told me she knows things happen in life and then told me about her BK.

I still and will always say it sucks that I paid for over 4 yrs, not missing a BK payment that was almost half of my take home income from my primary job (during pandemic my only job) and that gets no credit towards the credit score. I totally understand points knocked off for BK, but with Chapter 13 if you survive it you should get a higher credit score out of the deal even if it's not the best at least something to show for it. I also did not miss a mortage or HELOC or car payment and I don't think I was even late. I paid in the grace period several times when payday came after the day the bills were due.

[justbroke]

I did see though many pigheaded stubborn narrow-minded landlords who rejected my offering to pay upfront SIX MONTHS of rent for a 6-month contract, beause of my credit score. They were overwhelmingly Asian women - maybe there's a cultural value to the credit score?

I personally don't like credit scores because they have never measured "my" experience with creditors. When I filed bankruptcy it did accurately reflected my current situation but I had never been late on a payment. As a former landlord, what other subjective (and objective) measure do I have to ensure that an applicant will pay? I don't know of any.

Landlords can't demand 6 months of rent but people have offered 6 months of rent to landlords to obtain approval. Why a particular landlord doesn't want advanced rent is up to the landlord. Perhaps the landlord had an issue in the past... I don't know. I very recently wanted to rent a place to where I needed to be and the landlord wanted a 740 score minimum. I wasn't there, but have significant income and offered to prepa. The owner's real estate agent, acting as the landlord, tried to get approval because I was the better candidate of all applicants (income, length of employment, decent score -- 720, etc). I'm sure the reason why they wanted a 740 score to rent a brand new $400K home was because they were burned before and believe score is a reflection of a person's ethics; it isn't.

I don't know. It was their choice. So long as they didn't violate a HUD (EOH) rule, I don't care. What I found is that private landlords are much more picky than corporate management companies. The former just look at the number (620+ score, no late payments, no evictions, no criminal record) and approve. The latter rent based on factors that, if within the HUD guidelines, make it more difficult to guess if you'd be approved. This is especially true today when there are many applications for affordable single family homes.

Years ago, I had to introduce my entire family to a potential new landlord. He had 5 other applicants, but he met my family and "liked" me. I filed bankruptcy 2 months later, and I rejected the lease. I wonder how that made him think about future applicants? Is he requiring a 740+ score? Is he weary of those wanting to prepay rent?

[flashoflight]

Well said bornfree2 !

I did see though many pigheaded stubborn narrow-minded landlords who rejected my offering to pay upfront SIX MONTHS of rent for a 6-month contract, beause of my credit score. They were overwhelmingly Asian women - maybe there's a cultural value to the credit score?

It's not personal. Landlords have an easy time choosing from multiple applications and all of them may be great tenants. LA County has an eviction moratorium too so landlords there probably won't take upfront rent. Many also fear the return of eviction moratoriums if outside of LA County.

[nozar]

As a former landlord, what other subjective (and objective) measure do I have to ensure that an applicant will pay? I don't know of any.

I see two areas of concern for landlords:
1. The renter's ability to pay
2. Not damaging the property

Each has pretty easy and reasonable solutions, and I'm surprised landlords ignore them.

Ability to pay:
- accept 2 months deposit, and stipulate in the contract that if the rent isn't paid for more than a month, the renter needs to leave.
- accept even more months' worth of deposits in an escrow account
- accept the prepayment of the entire lease period. This is done on a large scale by a slew of no-credit-check furnished rental apartment companies like Blueground, Sonder, 2ndaddress, Zeus Living, Kasa, HelloLanding etc. I did this as well with a private landlord. The state forbade *asking for* more than a month, but I *offered to* pay. Heck, hotels do this too, if you think about it.

Not trashing the home:
- take a refundable security deposit
- check references from past landlords, Airbnb, house sitting sites
- look at the applicant's character from LinkedIn, social media etc.
- run a background/criminal check

This level of trust is routinely earned by people on house sitting platforms: TrustedHouseSitters, House Sitting America, Mind My House, House Carers and so on. Not only do owners leave their homes to the sitters, they also entrust them with all their possessions, as well as their beloved pets.

A landlord can perfectly choose to rent to applicants with excellent proven references (showing an entire history) despite a low credit score (showing a current hardship). IMO one's history is more indicative of their character / care for a home than their current credit score. As someone told me, "I believe in you, in what you've done, in your potential, not in your current situation".

[justbroke]

I asked for the other objective and subjective areas, but you listed the things already done with residential rentals; credit and background checks, references, and deposits.

I see two areas of concern for landlords:
1. The renter's ability to pay
2. Not damaging the property

Yep, that's pretty much it.

Ability to pay:
- accept 2 months deposit, and stipulate in the contract that if the rent isn't paid for more than a month, the renter needs to leave.
- accept even more months' worth of deposits in an escrow account
- accept the prepayment of the entire lease period. This is done on a large scale by a slew of no-credit-check furnished rental

It really depends on the individual landlord and their tolerance and experience. You must remember that many people can barely afford the security deposit plus the first (and possibly last month) of rent. Consider that they also have a security deposit tied up at another landlord and you'll see that this is not easy for most tenants. I would submit that less than half of potential tenants can do anything that you suggest. Of course a large management company can shoulder any issues and can be more lax in qualification terms.

- take a refundable security deposit
- check references from past landlords, Airbnb, house sitting sites
- look at the applicant's character from LinkedIn, social media etc.
- run a background/criminal check

Three of those things are already done by every landlord: references, a refundable deposit equal to at least one month's rent, and a criminal background check. Yet, it doesn't always work.

The problem is "if" a tenant decides that they want to turn your $400K home into a meth lab. Or that they run into hard times and you move to evict, so they decide to dump cat urine all into the carpets, maybe punch a hole in every single wall, and cause more damage than any security deposit. It doesn't happen all the time, but once that happens to a landlord, they either get out from the business or get more strict (shy about renting to just anyone).

That's the problem.

I would say that a family is less likely to generally cause major damage issues. Probably why one of my landlords chose my family over potentially others. He learned a lesson since I filed bankruptcy 2 months later!

Let's put it this way. There hasn't been anyone that I haven't rented to in the past. I always took the first qualified applicant. None have trashed my rentals. I only ever given one a five day demand to move (for payment). The likelihood that those renting in the market area where I had property at the rate I charged (in 2006), could only attract people who made upwards of $72,000 a year. The median income in both areas was around $44,000.

A landlord also tends to not have issues with any professional rentals. Military rentals are also pretty reliable, especially when they are in an officer candidate program (just call their commander).

I'm just explaining why some landlords are more shy.

Please understand that I'm not saying that some landlords are too shy or too strict. It's just that I have a few family members and close friends that own rentals. They are happy to get the tenant that pays on time and doesn't damage the property. Even though I haven't, they have had tenants that move in the middle of the night taking all the appliances (everything, stove, fridge, washer/dryer, dishwasher and mounted microwave), punched holes in walls on purpose, squatted, ran illegal operations from the units, and took all the furniture in a furnished unit.

For me, I did everything you wrote (but didn't search their social media). For me it was sufficient because I hadn't been yet burned. For my friends... let's just say they are more careful with screening.