How Important is an Applicant's Credit Score, REALLY?

Question

How Important is an Applicants Credit Score in Applying for One of Your Properties?

Thomas S. · Answer

You also want to check on the report to see what percentage of there total credit limit they are using.

Each line will have the limit and amount borrowed. Be very carful with those applicants using more than 30 % of their credit and check the 30,60,90 day markers. If they are close to maxed out they are the type of individuals that generally believe a landlord can wait to be paid. Life is more important than rent.

Mike Hanneman · Answer

I understand that a credit score is a number that reflects past debt concerns and anything can happen in the future. Having said that when you're trying to figure out if a stranger is worthy enough of renting your, investment/property and how likely you are going to keep recieving rent for this person. I think it's pretty important having a minimum is also a good way to weed out tenants that you know you wouldn't want.

I'm curious to see others responses to this question.

Roy N. · Answer

If I might add a little to Thomas S. response above, the credit score is less important than the credit history (and knowing how to read it).  The credit history will allow you to see if a lower score is the result of a single traumatic event (divorce, job loss, etc) or a chronic pattern of not being able to manage finances.

Tim G. · Answer

If its low income area and the damage to their credit is due to medical bills I don't take it into great consideration. Welcome to America

Steve Rozenberg · Answer

That is all great information and I think it's great how everyone is a different perception of how it applies to them and their business.

I agree that credit is important, what I am really wanting to kno as are almost all landlords is that the person will pay their rent and honor their obligations.

I went from owning 35 properties and having a 30% eviction rate and 8 month tenancy to Owning a pm company that has 500 homes and a 1% eviction rate. I learned it's all done on the front end.. I say we evict 95% of our tenants, we just do it before they are accepted.

One thing i was cautioned and about 95% of the investors that base a acceptance or denial Soley in score is that if you reject them based on score you must per fair credit reporting act send them the proper documentation( like if you get denied a credit card you get about 20 pages) and the documentation is different for different scores. If you do not do this YOU could be possibly break the law and fined.

So again I would be cautious throwing that number around and not doing the proper legal procedure post denial. This could be state specific I do not know. This is just what I was advised

Christopher George · Answer

I'm a newbie investor with only one property under my belt, but I went through an extensive screening process before selecting my tenant and credit score was a huge part of that process.  The score like many stated above is important in determining the debt to income ratio of the prospective tenant. Those with scores under 550 I ruled out, like @Jeff Bridges stated above.

Ayodeji Kuponiyi · Answer

@Steve Rozenberg its important, I accept credit scores of 600 and up.

Matthew Porcaro · Answer

You want to see that they pay their bills on time, and what their debt to income ratio is. If you see they have say, 8 different credit cards, 4 of which are for clothing stores with $2,500 balances on each, that should raise a red flag.

If they're renting, they're obviously not the perfect candidate anyway, you're just looking for evidence of lack of dependability.

David Chwaszczewski · Answer

@Steve Rosenberg @Mike Hanneman I don't think the score is as important as the information you are given when you pull to qualify a tenant.  I don't care if they have a score under 600 (over that i am happy).  I look for WHY they do.  I look for if they have debt such as hospital bills or student loans that they will have to pay every month Vs. revolving debt that is unsecured and they didn't pay it such as CC or store credit account.  Looking into a potential tenants credit history will tell you more about he tenant then a score.  Hope this helps!

Michael Noto · Answer

@Steve Rozenberg First, how heavily we weight credit is largely based on the area the unit is in. In a B/A area we are a lot more picky and put a lot of stock in the credit score.

In C/D neighborhoods it is probably unrealistic to expect someone with a high credit score to apply for your apartment. Does it happen?  Sure it does but it's not the norm. We take a look at why the score is low. Is the score low because they have been delinquent in paying everyday bills (utilities, cell phones, etc...). Those are major red flags IMO.

How Important is an Applicant's Credit Score, REALLY?

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