Credit Scores! How much do you rely on information furnished by the Big 3?

Question

Quick back story: I am helping a client find a new lease. Their current building is not renewing leases for whatever reason and so now my client who just gained citizenship last year and his wife, a victim of identity fraud, are in the market competing for a new lease.

One thing I've noticed is that landlords want 700+ credit scores or else it's a futile effort submitting applications.

In the perfect world for a landlord, when they put their property on the market, they may get 10 people to submit applications, and likely out of those there will be at least one who checks all of the boxes - great!

But, do you as a landlord ever take care to look at a situation like my clients' where the husband is still building out his credit profile in the U.S. and the extreme case of identity theft that has severely hurt the wife's credit profile?

These folks have two children, make good money, and are looking to buy their first home next year, but in the meantime, have to have a roof over their heads.

So my question to the other landlords out there is: How heavily do you rely on/trust information furnished by the Credit Reporting Agencies? And do you ever take care to evaluate each applicant's individual circumstances? Or is it just, check all the boxes, else best of luck?

John Underwood · Answer

I rely heavily on a background check.Credit scores tell me alot about a person's desire to pay their bills.I listen to explanations and make exceptions on occasion.

Mark Ainley · Answer

@Blake Billups I think approach is key when inquiring on a rental. Make them out a packet of info together including the following: 1. Police report from wife identity fraud issue with LOX 2. LOX of all other circumstance 3. Offer prepaid rent up front or something that reduces overall risk to the property owner. @Jason Marcordes is right but more Landlord then not so not have firm criteria or easily stray away from process when someone offers 6 months rent up front. Do they have any co-signers that might sign for them? We use a matrix that has minimum credit requirements but also has a scoring system to not place all the burden on the credit score.

Brie Schmidt · Answer

I don't look at credit scores, never have. My requirement is no more than 3 late payments in the last 3 years. I look at the actual report, usually they have a time period where they had fallen on bad times. So I ask what happened and their response tells me about their character. If I can see they got back on their feet and haven't had issues in the last 3 years I approve them.As far as your clients, it's tough. My stepmom was an immigrant and when my Dad died she had no credit. Zero. They never put anything in her name. So I had to find her a landlord willing to understand the situation and allow her to show her account balance and allow me as a cosigner. It wasn't easy, 90% wouldn't even show us the property. But we did find her a place.The market is super competitive right now. I just listed a place last week. I had 20 showings this weekend and 8 applications, all in 1 day.

Jason Marcordes · Answer

@Blake Billups sorry to hear about your clients! This is a tough situation. In order to abide by landlord laws/avoid discrimination, larger/professional property management companies typically set standard screening criteria and stick to it. Any time we make exceptions, we open ourselves up to discrimination suits. In Chicago, it's also very difficult to collect and manage security deposits (due to the RLTO) so collecting additional security deposit or prepaid rent is out of the question. I would suggest going with a small property management company, or ideally, someone who self manages their property and doesn't need to adhere to the same laws as a property management company. They will most likely be more lenient and open to making exceptions for cases like this.

Jonathan Klemm · Answer

Hey @Blake Billups - That stinks, I am confident you'll find a solid place for your clients in the near future! Personally, I think credit is over-scrutinized, but also still important to take into account. Chicago is tough as a landlord so I understand the need to draw a line in the sand, which doesn't make it any easier for clients like yours. Hopefully, you'll be able to find a smaller landlord that can hear you out. Do they have a solid cash reserve that they could put up first and last month's rent? I'd be curious to how @Mark Ainley or @Jason Marcordes handles situations like these as a property manager here in Chicago?

Henry T. · Answer

I put a lot of stock in credit reports. In the past I have allowed a few who didn't technically qualify, some were great and some horrible. But now you can't make those allowances. The city councils who mandate that you post requirements put you in a position to be sued by the guy before that had a higher credit score(and you turned down). Every applicant that fails gets an adverse action letter. Can't do it anymore. Follow your posted requirements, or youre in deep trouble.

Nathan Gesner · Answer

Application screening is a method of determining risk. The higher the risk, the more money I need up front to mitigate that risk.Credit scores are heavily relied on, but I consider 14 other things along the way. If someone has terrible credit, but can show steady employment, good rent:income ratios, good Landlord references, and they are willing to pay more up front, then I'll consider them.

John Warren · Answer

@Blake Billups its really unfortunate, but most housing providers are being very, very careful since the pandemic. Also, the eviction process is terrible in Cook County, so you really can't take a chance on someone since it could cost you 6-8 months in lost rent, attorneys fees, and a nasty unit turn as your reward. The times where I have taken a chance on folks has mostly come back to bite me to be honest. Lastly, if you have minimum criteria, you have to apply them fairly or else you could have a fair housing issue on your hands.

Ray Hage · Answer

How heavily do you rely on/trust information furnished by the Credit Reporting Agencies? And do you ever take care to evaluate each applicant's individual circumstances? Or is it just, check all the boxes, else best of luck?Credit reports are important but not the end all be all. It would be hard to find tenants with over 700 scores as most of those people would just buy a place. My criteria are how steady is the tenant's income, solid bank statements, a relatively "safe" job (contractor vs full time salaried), my gut feeling, speaking with their previous landlord (you need to be sure to ask the right questions and also be able to tell if this was their real landlord lol) and their life circumstances. I recently took a chance on a tenant who had a low score. He had good income and he explained why his score was so low. It was prostate cancer and a divorce/bankruptcy, both of which happened in the past few years. So far so good with him as a tenant.

Richard F. · Answer

Aloha,I have been processing applications for a couple decades at this point, for 100's of units, and thousand's of applicants. I could care less what the actual FICO score is, I review the full report direct from one of the big 3 and learn what goes into making that score. For renters, I don't care if they have big medical bills, a foreclosure, a repo'd car, or huge student loan balances. What I DO care about are the past 3 - 5 years of "consumer" items...if there are multiple cell phone companies, utilities, cable providers with late payments or collections...PASS. If they have a fairly recent foreclosure or bankruptcy AND maxed out multiple credit cards, PASS. If they passed bad checks at the Pizza Place, Vickie's secrets, the library, etc. again a HARD PASS. I need to see responsible payments on trade accounts and generally less than 50% of max of those credit lines used. I note those payment amounts. An auto loan or two, with good payment records for a period of time, I take note of the payment amounts in relation to their income to see if it is reasonable.I'm also looking at the other information provided in the report, comparing it with what applicant provided on their application for timelines, employment info, addresses, other names, whatever I can use to complete the puzzle. Look at addresses on paystubs to see if they match "current address" on the application. This is all in addition to similar examination of available court records, income/savings verification as appropriate, employment records/history, and scrutiny of ID's...always looking for something that doesn't match other records, or that just generates a question to be answered. Google and other online resources can be revealing at times also. Look at it all! If someone is borderline, but generally looking ok, I might ask if they have further documentation to get them over the hump...significant savings or IRA accounts, or prior year tax return to solidify their "online" business income. They can choose to provide or not.I have always processed only one at a time, either approving it, or denying with adverse action letter, and moving on to next applicant.Of course, if you are buying a house, or just purchasing a used car, the relevant information and decisions will be significantly different for those situations.