Low Credit Score applicants

[Rong Liu]

Hi, BPers,

I need your kind help.

I am in the progress of screening tenants with mysmartmove.com. Currently one family applied as husband/wife/2-kids and uncle. The three adults makes 12.6k annually or 3.5 times of the rent according to mysmartmove or 3.2 times according their recent pay stubs.  Employment history has been verified and they have been with the current landlord for 5 years and he gives them a recommendation letter. The husband and uncle do construction related jobs and wife is kinder garden teacher.

However, all of the three adults have bad credit scores and collections.

• Husband: ResidentScore 536   recommendation: conditional 

He has two credit cards, one is "charged off as bad debt" ($448 past due)  and the other is paid or paying as agreed with $451 balance, no late payment for past 7 months.

And he has two collections from Comcast (2016) and a bank (2013), total amount is $692.

• Wife: ResidentScore 555  recommendation: low accept

She has 4 counts. Out of them, $520 balance from Verizon (2014) charged off as bad debt.

$449 for a credit card company (2014), charged off as bad debt.

The other two credit cards either has no balance or has closed.

She has 5 collections of total balance $2347.

Sprint (2012) for $621

World financial network bank (2014) for $512

Comcast (2015) for $741

Tmobile (2015) for $294

A medical bill （2011） for $179 

• Uncle： ResidentScore 583.   recommendation: accept 

kohls/CAPONE balance balance $1730， charged off as bad debt.

Other credit cards are closed or cancelled and without a balance.

Two collections:

Captial one bank: $1354

GE money bank: $959

I asked for reasons the wife explained when her husband lost job they prioritized to pay the rent and says now they have $5000 cash reservation.

What do you think guys? Is the Resident score same as credit score? How do you look at their debts?  Thanks a lot!!

[Bill Gulley]

The past rents from landlords is the most applicable indicator of credit for the type of credit being extended, you shouldn't care about credit cards or the car loan, those don't apply to you but do give a clearer picture of the big picture.

Any automated system of accept or reject is pure bunk, credit scores are valid cutoff points but not without applying the type of credit history to the type of credit to be extended with rentals. 

My guess is that they are not good money managers, not uncommon at the blue collar level, especially construction work that can be feast or famine. The teacher doesn't make enough to pull up the slack in lean times. They may be over extended, but they have been surviving like that for years so that is their level of financial management, most likely it won't change. 

That means they can be very good tenants, unlikely they will be buying a home! 

Paying rents as agreed for 5 years is pretty much a slam dunk to accept!

Automated systems can't think, landlords need to think in underwriting a tenant, not put themselves in a tight corner of hard and fast reject points as they are most likely to reject good tenants. That is really done out landlord fear of the unknown more than based on any valid assumptions. 

A newly bankrupt tenant can be the better choice, unlike the others, they can't take bankruptcy again for 7 years! So for those with bad credit as most may define it, they can be your best credit risk. 

You need written guidelines but they should be drafted with flexibility so that the landlord can make reasonable choices, income at 3 times the rent is a good threshold, but even that becomes irrelevant at lower and higher income levels, what needs to be examined is the cost of living and disposable income as well as the life style, are they young folks who may want to go out or is it a 72 year old lady who stays home? Some common since needs to come into play. 

Good luck :)