You may think when you are reviewing a credit report as part of your tenant application and screening process that the credit score is the most important piece of information. If you do I have to gently tell you that you are mistaken. There is much more to a credit report that a smarter landlord should be looking at when trying to determine if they should hand over the keys to one of their properties.
The first thing you want to check when you pull an applicant’s credit report is their personal information. Does their name, date of birth and social security number all match up to what you were told on the application? Is their last known address the same as they reported on your application? Are they being upfront about who they are or are they lying to you? Also check to make sure there is not a Jr. or Sr. in the name as that is sometimes easily confused and abused.
Second, examine their payment history. Are they late with payments every month or is there only one or two over the course of their history? Obviously you want someone who pays their bills in a timely manner. If they do not pay everyone else on time they are not going to pay you on time either.
Third, examine how much has been charged off as well. A charge off is debt that the applicant owned that was written off as . If you see a lot of these charge offs, the applicant may not be a good risk as they tend to skip out on their debts.
Fourth, determine if your applicant can afford your property. The credit report will estimate the total monthly amount of all of the applicant’s debt payments. You can then use that number to determine if they can afford their debts, their proposed rent and other necessities like food and utilities. If their debt level is too high, they will have trouble and will have to make a cut somewhere. That cut could be your rental payment.
Finally, you want to look and see if someone had a life altering circumstance. Things like a cancer diagnosis or a divorce can really side track things to say the least. This is why the credit score is not as relevant as the rest of the report. Their credit score is going to reflect these past circumstances but it may not tell you if they are in the process of getting back on track. The applicant will have to be truthful about what has happened and note that they are getting things back together. The credit report should demonstrate these items with recent on-time payments, etc.
The credit report is a must use tool for screening potential tenants. Learn how to use all of it to get the most accurate picture of your applicant. Don’t just rely on the score.
In my experience, too many charge offs = you’re not staying in my place. My experience is that they simply don’t pay anything or live up to any of their obligations. Lessons learned, eh?
However, 1 or at most 2 blemishes, then I can work with that. That isn’t an indicator that they won’t pay the rent in my experience.
Lastly, If not a lot of charge offs, but 2 or more defaults or blemishes…well, that will be 2 months security deposit, or I’ll just keep accepting applications – 2 months rent and I can afford to evict and not be too underwater.
Lisa
Lisa,
I think you are on the spot with your analysis. We have learned some hard lessons as well over the years.
Most have some sort of blemish on their credit reports. Our jobs as landlords is to find out why and what happened. Like you said, you are trying to determine if they will pay. For that you have to look at the whole credit report/history.
Too many blemishes? Like you we may require extra security deposit or a co-signer.
Good points! I appreciate you reading and taking the time to comment,
Kevin
No problem Kevin! I told you, I’ve been following you for at least the past year. I just found out about your blog a month ago, or else I would have been here sooner 🙂
Lisa