Credit Score Requirement

[Jordan Rajchel]

I am working on getting my first rental property rented out. 

I read Brandon's "The Book on Managing Rental Properties" and am requiring at least a 600 credit score. My question is, do you typically require that every person on the least have a 600 credit score?

I am also requiring income 3 times the rent which is 3600 per month. 

One woman responded that they had the income covered between, her, her husband and her son who lives with them. Was just curious, since I will need all 3 of them on the lease, shoudl I also require that all 3 meet the credit score requirement?

[Alex Deacon]

@Jordan Rajchel 600 credit score is a good benchmark but you may alienate good applicants with a slightly lower score with great income and rental history. You need to look at the entire picture. If it takes 3 peoples income to afford a rental then you need to be careful even if their credit score is ok. I would have anyone who is over 18 on the lease if you are requiring their income to qualify. I dont think the answer to your question is a simple yes or no but it rarely is when the subject is real estate.

[Jordan Rajchel]

Thanks @Alex Deacon I am definitely with you on the credit score thing. I've been saying 600 but if also letting people know that I am flexible there depending on the rest of the app.

On the income requirement. The thing is, she says the husband makes 3000-4000 per month as a truck driver. So he nearly has it covered on his own.

[Alex Deacon]

@Jordan Rajchel it sounds like they will work as far as the income but also look at their landlord references, how many times they move, why they are moving etc.. etc.. Best of luck to you.

[Thomas S.]

Minimum 600 score may be fine for C class properties but too low for my B class properties. I have a minimum 650 requirement and usually accept applicants with 750+ scores.

I will accept a married couple with a combined income of 3X rent but never include adult children income. All applicants over 18 must have minimum credit score but I generally reject applicants with adult children.

The way I operate is I set minimum standards and don't waste my time working to qualify unqualified applicants. Most decisions  are simply black and white made for you by your standards. No point in establishing minimum standards if you have no intent of using them. You set yourself up for legal challenges by not being consistant.

[Jason D.]

@Jordan Rajchel I dont have a minimum credit score. I think there are too many things that can lower your score that has nothing to do with their ability to pay tent. Part of my minimum requirement for credit is "no serious derogatory remarks".

I'm much more interested in income and landlord references.

[Jordan Rajchel]

@Jason D. makes perfect sense to me. Thanks for the help!

[Lynn McGeein]

I do have typical qualifications of credit score and annual income, and qualification is for each applicant 18+ years of age unless they are an other-occupant dependent of applicant (first page of signed tax return showing dependents listed is ok for proof).   I understand applicants may have an elderly parent, stay-at-home spouse, or a college-age student living with them.  All 18+ or over, applicant or other occupant, are required to pay for and pass criminal/background checks.  While I state typical qualifications, I also provide a section in the application where applicant can provide a request for exception to typical qualifications, so if they have an old medical bill that ruined their credit score, for example, or their college kid got an underage drinking in public or something, I would possibly consider the exception.  Must have clean rental history, though -- no exceptions to that.    

[Jordan Rajchel]

Thanks everyone for the response. I did have one other question. I was planning charge a $35 application fee to cover my expense of running the check. Is it typical to charge that fee per applicant on the lease? 

I was considering offering to apply application fee towards first month's lease assuming everything checks out but if there are more than 2 applicants that is pretty significant.

[Lynn McGeein]

I personally check landlord history and employment verification myself, then have applicant(s) pay Transunion Smartmove or other background check service directly to avoid any issues with potential return of deposit (states have different rules on how much you can charge/keep).  It's in my written application that they agree to pay the fee directly to my choice of screening agent up to x amount, and it includes a verification of employment form and rental history permission for them to sign that I can send to their employer/landlord directly.  If they don't meet landlord history or employment verification, I just let them know they didn't pass to the next phase, and I don't set them up for screening.  I've wasted a few emails or phone calls, but it saves everyone a lot of hassle.    

[Caleb Heimsoth]

@Jordan Rajchel. It really depends on the area and class of the rental and tenants. In some areas I don’t even really have a minimum credit score. What’s the difference between a 550 and 600 credit score? Very very little. Difference between 550 and 750 is a lot but that’s rarely going to be the case.

One PM of mine has a minimum credit score of 525 and that’s in B/C areas mostly. In the other they don’t really run credit, just check background for evictions, felonies etc. and both require 3X rent as income requirement. So it can just vary. Hope this helps.

[Mike Roy]

@Jordan Rajchel - No matter what your standards, I would suggest keeping a written record of them and applying them consistently for every applicant.  Renting to an unqualified tenant is a minor setback; getting sued for discrimination could be a pretty major one.

With respect to credit score, there are extenuating circumstances that could lead an otherwise qualified applicant to have a poor credit score; and their poor credit could be the one reason why they're renting instead of buying.  Rather than setting a minimum score, you could refine to disallow applicants with personal bankruptcies, unpaid utility bills, etc.

[Scott Anderson]

I had 100+ inquiries on my property. Uploaded info on applicant requirements, Zero responses after stating the credit score minimum of 600.

Removed that and was rented the next day. 

I no longer have a requirement only a phrase about credit history being a primary decision factor.

In this area if you have what Brandon Turner wants in his applicants they are BUYING not renting.  Every location is different. Adapt or die. 

[Kenneth Garrett]

@Jordan Rajchel

The application fee applies to all tenants over 18. I do not credit the fee towards rent. Depending on your area a credit score of 600 is fine. I look at DTI not to be over 45%. No evictions in the last 5 years. Income 3X the rent. I have accepted a credit score in the 590's, but required two months security deposit. I do not allow MTM, although I understand that is popular with some landlords just a personal choice.

Good Luck. 

[Sam Hopkins]

@Jordan Rajchel I think the entire world has a 600 credit score? I shoot for 700+ unless you are in c or d houses?

[Jayson Brown]

@Thomas S. Question. With a 650 score and above, why wouldn’t the potential tenant just buy?

[Thomas S.]

"Question. With a 650 score and above, why wouldn’t the potential tenant just buy?"

650 is not a stellar credit score however......credit score is only one of a long list of reasons why indivulaes may choose to rent. Not everyone wants to own, many choose to live pay check to pay check without savings, not everyone is in a place in their lives to own, not everyone wants to be tied down, not everyone is good at saving money etc, etc. It make no scenes to assume everyone rents simply because they have no other options. I target retirees, all with excellent credit scores, 700++. They rent because they have sold their homes to free up equity to retire or because they find ownership stressful.  

The average American FICO score is 695. Fairly certain not every person that hits a 650 score rushes out to buy a home. Admittedly 650 is too high for C/D properties but should be a minimum for a B. 

[Dennis M.]

Credit score says a lot about a person and how responsible they are with their financial life unfortunately in low income areas that is metric not a feasible screening method simply because in these areas most everyone has poor or no credit . Your going to be hard pressed to get good otherwise good tenants by having a set minimum like that . Alot of people don’t even know their score And simply won’t apply for the fear of not hitting the minimum criteria

[TC Greenwood]

When I am buying in an area for the first time I create an avatar.  There is a lot of information available on who lives there to understand who you are targeting.  By looking at this information it will be a lot easier to set your standards accordingly.  This has saved me a lot of trouble.  I had a hard time renting a place in a C area as i was looking for an A+ tenant.  Brought me back to earth!

[Thomas S.]

"Your going to be hard pressed to get good otherwise good tenants by having a set minimum like that"

100% agree. The problem I see is that B class landlords are setting their standards far too low and should be targeting a higher quality tenant base. Their problems result from poor management. They rent B class properties to C class tenants by having low expectations when screening. They need to upgrade their own standards. It isn't just there credit score standards that are too low it is their entire screening process.

How many times do we see posts on here that start with .... should I rent to this applicant. Obviously they have no idea how to screen and have undefined standards. The question...should I ...should never come up when screening. Clearly they do not have well defined standards.

In the case of C/D properties it is a entirely different business that requires skill sets most landlord do not possess but for B class it is much more straight forward. Unfortunately the business is flooded with desperate landlords treading water over the low end of the tenant pool.