What cutoff point do you use for Credit in tenants?

Question

I just put my first unit on the market and I'm getting a whole range of interested parties. Many of the folks who seem like decent potential tenants have lower credit scores. There are many folks in the 600-650 range, which seems very low to me, but perhaps I'm being too strict on this? There isn't a lot I feel I can use as criteria, so this serves as a sorting mechanism, but I don't want to limit my pool too much. Is there a cutoff point I can use as an indicator of someone who does/doesn't pay things off? Is there a magic number that sorts out the unreliable tenants and keeps the ones who will likely stay for a while and pay on time every month?!

Michael Garofalo · Answer

Hey Matt, I view credit scores like SAT scores as they relate to the college admission process. It's good to have some sort of threshold, but you always need to look at the whole picture, otherwise you might lose out on better-qualified candidates. Like @Caleb Heimsoth mentioned, I put the most stock in eviction history, criminal record, and ability to make payments (3x rule). I will rent to someone who has never been evicted, has positive references from past landlords, and makes 3x rent, but has a low credit score of 525 (maybe because they missed a few medical bills or whatnot) any day over a person with a higher credit score (say 650) but has had an eviction filed against them, or has negative references.

John Underwood · Answer

@Matt Tatkow I follow pretty much what @Caleb Heimsoth mentioned. I usually ask for a larger deposit when there are issues such as lower credit score. A higher deposit than a months rent tends to encourage the tenant to pay that last months rent and leave the house reasonably clean so that they get their deposit back.

Dick Stevens · Answer

Instead of focusing on score, look for a credit report that demonstrates a history of responsible financial decisions. This is more valuable than a score.

Caleb Heimsoth · Answer

I go as low as 525 for my Memphis rentals, per the property management companies criteria. I think the lowest is 558 or so currently. The biggest thing is no evictions or judgements or criminal record and verifiable income of 3x rent. If they have all that, then the low credit in of itself isn’t a big deal, at least to me. I can not pay a bill for a couple of months and my credit goes from 750 to 575. Very easy to have poor credit.

Matt T. · Answer

@Joe Ruggiero, It's not modern, 2 bed 1 bath. Happy to give you a walk-through and fill you in on what I learned about the market. I'll dm you.

Linda S. · Answer

@Matt Tatkow,Instead of focusing on the score.. look at the report! Have they ever been late on a bill, if so--when? What's their total payments due each month, and how does that compare to their income? I think so many people get caught up with the #, and don't look at the actual score, and what it means to a landlord.... I do C/D properties, so when I get it, it's about the report-- not the number.... late payments are the biggest red flags... because you have to understand, if someone has 1K outstanding, but they have a $10K line, that's not a big deal.. but if someone has 1K outstanding, and 1K line, that's horrible.. so focus on the report and what it means as far as lifestyle.I suggest focusing on income/job stability, that's what is going to pay the rent! Make sure the home is a good match for the person, their job, commute, lifestyle, etc.

Thomas S. · Answer

If your property is c/d class then credit scores are not of much use. Those type of tenants rarely place any importance on financial obligations. If you have a B class property statistically a score of 650 should be a bare minimum. Any B class applicant with a score below 650 is likely financially irresponsible in having not saved or made plans to manage major financial hits.My minimum requirement, as one part of my screening standards, is 650. The vast majority of the applicants I accept are well above that score.Credit score is a measurement of financial responsibility and is a very important metric for assessing any applicant. Keep in mind when tenants run into financial management problems their landlord will be the first impacted and the last to be paid.

Joe Ruggiero · Answer

@Matt Tatkow if you don't mind me asking, how many beds/baths? How modern did you make the unit? And what did you end up renting it for?I just bought in Salem and am starting to get my feet wet with the same things.

Matt T. · Answer

Wound up getting some very qualified tenants with great credit scores and five applications. Must have priced it too low, but at least I have a tenant in there that seems very reliable and all previous landlords said they were wonderful. Thank you all for your thoughts!

Colleen F. · Answer

I look at paying history. The highest credit scores leave quicker to buy a house. I prefer committed renters.