[Y]ou often hear how landlords check your credit rating and a bad credit score can prevent you from renting a place. However, being a landlord can also harm your credit if you aren’t careful.
Your Property, Your Responsibility
Many people decide to rent out a room in their home or even convert a basement into an apartment. They may purchase a second property with the idea of renting out the first one instead of selling. All of these ideas can provide additional income and help pay the mortgage. However, you can’t rely solely on the income from the rental unit or you might end up in trouble.
If your tenant refuses to pay the rent, you are still responsible for making the mortgage payment. If you have multiple rental units with vacancy, this can become quite a financial burden. You don’t want to get behind on the payments or it will be reflected on your credit report since the mortgages are in your name.
How to Protect Yourself
You can do several things to protect your credit when renting out one or more properties that have a mortgage attached to them. First, make sure you can afford the payments even if you don’t have a tenant. Don’t take on more mortgage than you can afford with your own salary.
Second, check out any applicants who are interested in renting your property. You want to make sure they have a solid credit history of payment. If you are in doubt, reject the application or ask for a higher deposit.
Third, be aggressive about payments, but make sure you put your standard policy in writing. It take time to evict a nonpaying renter, so you want to take action early on and not be left with someone who refuses to pay the rent but still resides on the property.
Renting out your home or another property can be a great second income, but make sure it doesn’t ruin your credit. Protect your credit history by choosing the right tenant and communicating payment expectations and policies from the beginning.
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