how do you go about credit scores etc. low credit market

Question

there are some places where i get inquiries for apartments, where 99% of the people have credit scores in the 500s, how do you go about this?

Jonathan Taylor Smith · Answer

@Sami Gren - I have no minimum credit score requirement in my tenant screening process, because if you really look into how credit scoring works - its a largely bogus determination of tenant worthiness. I have tenants with a higher credit score than me (read my BP blog post about it) - because I use debt to buy assets. This despite the fact that my income is over 100 times higher than the tenant, and I've never had even a single late payment. I do not care about credit score.

What I care about is non-medical / non-student loan related collections, liens, judgments, repossessions, criminal convictions, prior landlord and personal references, time on job, income, communication skills, ability to follow directions, etc... and my tenant screening process focuses on these things. But I may reference credit score (along with other things) as cause for needing an increased security deposit. If I refused to rent to someone just because they had a credit score in the 500's, I would have missed out on some of my best / longest term tenants.

Jonathan Taylor Smith · Answer

@Sami Gren - Its a total picture... If you had a hurt or sick child, you're going to take them to the hospital, even if you can't afford to pay the resulting bill of $350 for an aspirin or $500 for a splint - which will then kill your credit score. And I'm also not going to fault someone for trying to improve themselves through education, only to find out that it's greatly overpriced and now they're over qualified for their prior job and still can't get that new job to be able to afford to pay all the student loans that can't even be discharged through bankruptcy.

IMHO, far too many landlords set an arbitrary credit score, when they should really just do a better job at tenant screening and on-boarding. Unless you're renting A+ apartments for $2K+ per month, then credit score should be below many other things on your list of criteria and should supplement the other things, not supplant them. Now if you're renting $2,500/mo houses, then by all means require a 680+ credit score.

Eli Schwartz · Answer

Hi @Sami Gren

It really depends in the area, in a lower class like c d markets it'll be the norm with low scores.

Imho credit scores isn't everything, it could be because of medical bills, as long as the other factors checks out e.g. 3-4x monthly rent, no evictions etc.

John Teachout · Answer

For most of our properties we set a standard of a 600 credit score. The vast majority of people will not qualify. I get an average of over 100 inquiries for every vacancy but probably average 2 completed applications. We will accept a lower credit score with additional deposit "sometimes". I often see things like phone and cable providers that placed debts in collections. I also tend to place less weight on medical bills. Did your car get repossessed? Sorry, look elsewhere.Although we always eventually get rent and late fees, the people that have late payments are the ones with the lower credit scores that we accepted anyway. People that had higher scores always pay on time. So there definitely is a correlation. We have some tenants that have paid on time about 2 times out of the last year. We are renewing their contract as they do eventually pay. Landlording is not as "easy" as some of the books indicate. We make it work though.

Sami Gren · Answer

i get the thing about hospital bills,

BUT in most cases the problem is not just the hospital bills, it is also paying late credit card bills cellphone bills etc., (i just had an applicant that told me he has a late payment of $35 [not 350]), is that not a concern that they would not be   paying their rent if they feel that their air pods are more important?

and about what you said that in a class A i should look for a credit score of 680+ , i understand that it makes sense that in a class C area that will be hard to find, but obviously you agree that someone with a higher credit score is more likely to be on top of their rent like you said by a class A area.

Sami Gren · Answer

thank you, i am really going crazy by not knowing how to handle this situation.

but in almost all cases the reasons they are in the 500s is because of late payments on credit cards, isn't that an issue?

Also, you really dont look on medical  or car related issues, even if its not so much money?

John Underwood · Answer

I look for the best applicant.

Someone that has had same job for a couple years, someone with more income that can pay the rent.

If I have to give a little one one of my criteria then I get a larger deposit, usually 1.5x the rent or first, last and security.

Sometimes you have to keep looking to get a good applicant.

I have been luck I usually get 30 people inquire and 4 or 5 apply.

Section 8 can offset a low creidt score since their rent or part of it is guaranteed by the government.

how do you go about credit scores etc. low credit market

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