Tenant Screening: Bad Credit okay?

[James Brand]

Hey BP, 

I am currently considering a potential tenant with a poor credit score in Philadelphia. He was upfront with me about it when first viewing the property, and explained he does not currently have a credit card so building his credit has been tough. His prior two landlord references had nothing bad to say. Additionally, he was agreeable to move-in ahead of schedule which is ideal for me, and a longer lease so that the lease term ends in the Summer next year. 

I am curious to get some takes on this...

Thanks!

James

[Alex Hamilton]

Hello James,

Make sure to establish a screening criteria and apply it to each applicant without bias. If you are looking at an applicant's credit score, consider why they have bad credit. Look at their debt to income ratio, amount of 30/60/90 day late payments and types of delinquent accounts. Below is an example of a Risk Assessment that you may find useful:

Positive credit = Low Risk; accept applicant

Negative credit due to Educational Loan Delinquencies or Medical Payments = Med Risk; approve applicant with increased deposit/co-signer

Negative credit due to utility delinquency, money owed to a property management company or homeowner, car payment or unsecured debts = High Risk; turn down applicant

Unfortunately, FICO doesn't do a great job of considering the above Risk Assessment when scoring a consumer. You may want to try using VantageScore (made for tenant screening) or eliminating the FICO Score from your screening criteria altogether. 

You may also want to consider refining your verification process. I understand the prior landlord references didn't have anything bad to say, but did they have anything positive to say? How did you verify the information on the application? Did you verify income with their employer?

Feel free to contact me directly with additional questions regarding tenant screening. I'm happy to offer tips. Good luck!