Tenant Screening - What is a reasonable Credit Score?

Question

I've heard Brandon and David talk about having a clear tenant screening criteria.  I have a 4 unit rental property in Lincoln, NE.  I am open to accepting tenants with vouchers, or Section 8.  I am wondering what is a reasonable credit score for tenant screening?  Also, if we are accepting housing assistance vouchers is the criteria of earning three times the rent out the window?  If so, is there a reasonable alternative for how much they should earn?

We use RentRedi to manage these units. The automatic e-mail that goes out from RentRedi for prequalification asks for W-2, tax returns, prior year tax returns, employee letters, etc.  It sounds like they are applying for a loan.  We do the background checks and talk to previous landlords and employers but these other documents seem like too much.  Does anyone else out there ask for all this documentation and is it really necessary?

As always, thanks for your input.

Sina Bigdeli · Answer

in my honest opinion, credit score is not that important. What's critical is the tenants credit history. things like:

- % of on time payments (I like this to be 90% or more)

- debt to income ratio (how many open credit lines i.e. car payments, child payments, etc they have) and compare that to their income .

- any defaults, liens, etc on them.

- duration of open credit lines. If they have consistently showing credit line for a month or two open, then they close it, it tells me they are not really an established creditor.

Generally I am looking to answer "where do they prioritize their payments" in the financial life. Do I have to chase payments, or do they consider paying their bills and rents before going on vacations, etc. Credit score alone doesn't tell me this story.

Rick Albert · Answer

I agree with the above.  What's better: 650 credit score because they are 19 years old but never had issues or someone with a credit score of 675 but has 3 collections against them?  It's more about the history than it is the number itself.

And whatever you do, do NOT take a report that they send you.  Always run a new report for each candidate.  I've had Realtors tell me that they already ran it and try to use it but things change every day (accumulating more debt, etc.) or worst case, it has been changed to become a false report.

Sina Bigdeli · Answer

in my honest opinion, credit score is not that important. What's critical is the tenants credit history. things like:

- % of on time payments (I like this to be 90% or more)

- debt to income ratio (how many open credit lines i.e. car payments, child payments, etc they have) and compare that to their income .

- any defaults, liens, etc on them.

- duration of open credit lines. If they have consistently showing credit line for a month or two open, then they close it, it tells me they are not really an established creditor.

Generally I am looking to answer "where do they prioritize their payments" in the financial life. Do I have to chase payments, or do they consider paying their bills and rents before going on vacations, etc. Credit score alone doesn't tell me this story.

Scott M. · Answer

Reasonable credit score will vary widely on the type of area/income this home is in.  Class A / upper income will be very different from class D lower income.

Can you say more about the area your home is located in?

Brian Garlington · Answer

As an FYI, when it comes to Section 8 I generally don't care as much about their credit score because 70-100% of their rent will be paid by Section 8,,,,,,,,,,,,,here's what I DO ask.

How many people will potentially live at the place with you? Whatever number they say and 1.5 to that to account for the other unnamed adult that willalso move in as well as the uncle/niece/cousin that will also spend a lot of time over there but not necessarily live there.

Do you smoke. Anything.  I don't care if you have a medical precription, you are not smoking that "green stuff" at my rental.

Do you have any animals or pets?

If they have any evictions or felonies in the last 7 years I will not rent to them, neither will my PM.

Ryan Barone · Answer

@Troy Froistad if it's any help, the pre-qualification invite does not ask for the items above (e.g. W2, tax returns) -- those are only recommendation once the applicant is doing a full application (and they can definitely be skipped if preferred or you can modify what you want to request).

For the pre-qualification, they just answer a few quick questions to help you decide if you think it's worth continuing (e.g. showing, application+screening).

Things like:

- pets

- smoking

- income

- estimated credit range

- # of occupants

- lawsuit/felony

- guarantor income (if any)

Hope this helps :)

Tenant Screening - What is a reasonable Credit Score?

Most Popular Reply