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Updated about 11 years ago, 09/22/2013
Minimum Credit Score
I was reading the tenant screening guide provided by BP, WOW it is full with some great information. Assuming the prospective tenant income is 3x rent, no evictions, and good references, do any of you also set a minimum credit score requirement? If so, what is the minimum score that you would accept?
Nope. The agency I use only gives me a red/yellow/green rating for credit unless I pay a lot more and deal with their inspections. I've only had one tenant that wasn't red and they bugged out owing me rent.
Yes, I cut it off at 600. (I also have other things I look for like no more than 4 collections, no money owed to prop. mgmt, etc.).
When they call about the rental I tell them I don't take anyone with a score lower than 600. I will be getting rid of a few decent tenants this way but I know from experience that 90-95% people with low scores will have serious items on the report and that score is well deserved. They are also likely to have unexplained gaps in the rental history and other issues once the application is filled out. I have also heard that the likelihood of a person having a criminal history correlates with the FICO score. I used to run myself ragged processing applications from all of these duds but I've found it saves a lot of time just to nip it in the bud during the initial phone conversation.
I never listen to any explanation from the applicant, I just go by the raw data. I had someone on the phone the other day tell me that he had a low score because "his account was hacked". OK, whatever dude. Take it up with the credit agency, not my problem.
I usually don't care about the score. As long as they have a good income and pay their rent, their score doesn't bother me. I prefer bad credit as it makes it harder for them to move out or buy a house of their own. Low turnover is good for me.
I did recently rent a house to a woman with no job. Her 800 credit score was a factor in convincing me to approve her......along with the fact that she paid six months in advance and had a pile o' money in the bank.
Bienes,
There are no data that say that criminal history correlates with the FICO score. Do you have any hard facts that the two correlates?
Joe Gore
Ok here is where I choose to be a human being. I put weight into credit scores don't get me wrong. But when I take the application, if the prospective tenant tells me he has bad credit because of XYZ, and the report shows XYZ, then i give them character points for telling me upfront.
If they tell me everything is perfect and I find an eviction they forgot to tell me about, then no way do they qualify.
The vast majority of this country went thru some financial difficulty (myself included) during the crash, and we as landlords are experiencing our current success in this industry because of the crash.
My credit report shows me the past 24 months of payment history for revolving credit and also shows me back to 06 or so if there was problems, along with any court cases that match their name/ss#. I'm looking for good payment histories, and if I see some bad credit for a short period of time, followed by a good payment history over the past 24 months then I will approve them.
The credit score is only one factor I look at when I consider a tenant. Im looking at the following
Credit
Ability to pay
Character
Job History
And a few other criteria
@Chris Adams
I see what you mean but sometimes even if they are honest and nice as pie while applying, after you give them their second chance and they move in the mask comes off and the real personality starts to show.
Maybe it's different in other parts of the country, but the people I encounter here with bad credit are rarely people who had a temporary bump in the road. I think I've gotten one applicant ever whose bad credit was caused by a foreclosure.
@Bienes Raices I'm certainly not suggesting to take tenants with bad credit, Im simply suggesting that credit scores are only part of the equation. And being able to read and interpret a credit score is more involved than just looking at the score.
Simply refusing to accept a tenant with a score below X is certainly the right of all landlords. But at the same time not all 650 credit scores are the same, and understanding how to interpret credit history will help landlords find good tenants.
@Chris Adams
I see what you're saying but there's the matter of spending too much time on these people. I suppose you could ask them a lot of pointed questions on the phone about debt to income ratio, collections, etc., but they may not know the answers to those things--but they usually know their score. If I get 20 calls from people who tell me that their score is lower than 600, I'd rather weed out that entire group on the phone than spend time meeting all of them to find the 1 person out of the 20 (who may decide they don't want the rental anyway, or not show up for appointment) may be a decent tenant. Why not concentrate on getting the quality tenants instead?
I have never once even pulled a credit score on a prospective tenant. It does me little use. I want no evictions or even paperwork to file eviction. I want any traffic or other court fees to have been paid in full. No judgements for money. I want minimum of income at 3 times rent. I haveearned to pick up on ques from folks and judge their personality. There lifestyle, interests, and hobbies have become an even greater factor as I have gone further.
One thing that I usually look past is medical debt but if it is a lower debt and they just appeared to ignore it that is not a good sign either.
Kyle,
Unpaid traffic ticket is really pushing it don't you think?
Joe Gore
@Account Closed
There is nothing illegal about what Kyle is doing.
Bienes,
I did not say anything was wrong it is kind of odd someone be nit picking over traffic tickets.
Joe Gore
@Account Closed
OK. I misunderstood. However if Kyle is in a hot rental market where he can dictate the terms I don't see an issue with it. If it's a market where people struggle to fill vacancies, it could be considered dumb. But whether or not the applicant thinks the owner is uptight for doing this should be a non-factor.
I don't do this, but I have heard of LLs who take an applicants moving violations into account. Their thinking is that this person may have a pattern of reckless, irresponsible behavior if they have a lot of speeding tickets.
- Credit
- Income
- Cash
Pick any two...
min credit score 550.
550-600 deposit 2x
600-650 deposit 1.5x
>650 deposit 1x
>720 beg them to rent from you :)
No evictions. ~3x income.
These are just guidelines. There are always gray area. If they can give good reasons explaining poor score, then, it's up to you to decide.
Joe, I would like you to explain to me how I am going to get my money if need be from someone who cannot or will not pay $70 to the city or county for a traffic ticket? This tells me that utilities will be a struggle, and gives a lot of insight to the financial habits of a person.
Joe, what do you do anyway? I have seen lots of comments from you over the last month or two. I seem to have a large disconnect from your style compared to the majority of the community. Maybe you specialize in something where it makes sense and I am also not familiar with the Dallas market. Maybe you could enlighten me so I can gain more from your comments. Thanks joe.
I sell 1st NPNs and foreclosure proprieties to investors, and the Dallas market is very good, and I am sorry you do not agree with me on certain things, and I don't expect everyone to agree with me and the ones that don't agree are new to the business and just learning guess after 20 years I have set my way on how to do things. Kyle you are the only one that I know that used traffic tickets as a way to not to rent to someone there are many things to look at when you are renting and the main thing is no pass evictions, no criminal history, make least 3x the rent, steady income.
Joe Gore
Joe, I am not the most experienced guy with only 7 years under my belt and we do seem to be on different ends of the industry. I have learned that in order to be successful, I must look to learn something at every opportunity. I did mention the same criteria as you but also have learned to understand my target market. If someone does not pay their bills that doesn't work well with me. If someone loses their driver's license because they failed to pay a ticket, that steady income can go away pretty quick. The longer I have been in this business the more I have found subtle hints that don't show up in common avenues. With 21 days of vacancy since I got into this business through all my properties, I look for any edge I can to continue that streak.
Thanks for your response Joe, and please consider expanding you ways as opposed to being stuck in them. I am certain that with your experience, picking up a few new things would only accelerate you success. Thanks for your insights.
Originally posted by Bienes Raices:
Huh?
No it doesn't.
Someone who just got out of serving 10 years probably has a good credit score because they simply haven't been able to incur debt easily 'inside.' Rental references? Yeah, those they don't have.
Drug dealers and thugs may very well have good credit if they have big income and never bothered to apply for credit cards. Or because they pay cash for everything-- for obvious reasons. That's an "accidental" unplanned good/decent credit score.
I would say that a 500 credit score sucks, and such a person has issues with paying bills on time. These bills could be medical bills, credit cards, or what have you. They are not financially responsible and not pay their bills on time, but that doesn't mean they're criminals.
Income, financial responsibility, education, responsibility, etc. does correlate with social class to some extent. A doctor making $300,000 a year has a lot more to lose by walking out of a lease or destroying a house than someone living in the slums on welfare has. A thug on the streets isn't exactly sitting there thinking about his FICO score-- but he also might not need (or even know how) to apply for credit cards and might have stumbled upon a decent credit score.
Just this past week there was a post with a name of a lender that will lend for home purchase to 580 FICO - so if you are much higher than that for rental qualification, then maybe you are being somewhat strict. You can do that if there is lots of demand.
As to traffic tickets, there are people who earn their living driving a vehicle, and would lose that job if they had too bad of a traffic record or lost their license for too many tickets. Think about taxi drivers, UPS delivery, bus driver - and even contractors, for some examples. For such people, I do look at traffic record.
Some links to consider:
Originally posted by Steve Babiak:
Just this past week there was a post with a name of a lender that will lend for home purchase to 580 FICO
Only 580? What lender is that?
Lenders around here wouldn't touch that. Unless, perhaps, all old debt is paid, there's good income, and significant cash down.
I agree that you can't go too high otherwise the "ideal" tenant would just buy. If they've got exceptional credit and income, they could buy instead of rent.
Joe, correlation and causation are two different things. Also if a "thug" doesn't take out credit how is this "thug" gonna have a good score? If someone goes into jail and has no credit activity for 10 years they do not have a good score they have no score. Do you have much experience with credit scores because you are tgrowing out inaccuracies?
Many years as a silent partner in a large apartment complex and we never used credit scores. We look for evictions, criminal history, income. If you feel credit scores are a part of your plan, please use them.
Joe Gore
Originally posted by Jon K.:
Just this past week there was a post with a name of a lender that will lend for home purchase to 580 FICO
Only 580? What lender is that?
...
See this thread:
@Account Closed - you know that there is much more info in a credit report than just a score (unless you're just getting the score). I check the address history in the credit report and track down property owners at the time the applicant resided there, to determine what sort of tenant they were (also to see if the application was completed honestly).
And there are other uses for the credit report in screening applicants. For example, you can see the "trending" - is the applicant improving their credit score (getting better at paying on time), or is the applicant worsening? I'll take those in the first category, and I'll pass on those in the latter.
I'm sure that you can enlighten us with even more "outside the box" uses for the credit report.