How to Evaluate Renters Credit to Approve a Lease Application

Many landlords struggle with the process of deciding upon exactly which rental applicant to accept.   How does a property owner make such a difficult decision in cases where it seems that nearly all of the rental applicants have poor credit scores?

The focus on renters credit should be centered on making a good assessment of your potential tenant’s financial condition combined with a establishing a reasonable prediction of just how reliable the applicant will be at maintaining their responsibilities.  Predicting the reliability of the rental applicant should not only be limited to looking into their credit history, but also the role that they have played as a law abiding citizen in society.

Renters with Good Credit Can Completely Trash a Place Out

You can’t always depend on a credit report to do the work for you in screening potential renters.   For this reason, it is vital that the property manager conduct a renter credit check, and thoroughly investigate the background history & track record of this individual to uncover all criminal records on a nationwide basis.  Believe it or not, criminal history can actually be a predictor of whether or not you will have a” good” or a “bad” tenant as it relates to the way your property will be cared for as well as the type of neighbor this person will be in your rental unit.

What does a long history of collection activity and delinquent accounts  say about the individual who wants to rent your property?

We suggest that you analyze each renters credit on an individual basis.  For example, some individuals may have a very good reason for having a low FICO score in situations where they were truly victims of identify theft.   Landlords can often get to the bottom of this by ordering a credit report that should show disputes of this history by the applicant.   If you can’t be provided documentation of such a claim, be very suspicious because many fraudulent or underhanded characters will use this as an excuse for their poor credit.  From our experience, the later is more often the case despite how big of problem we are currently seeing with ID theft.

Free Download: Renters Credit Application

What about Renters Credit that Shows Unpaid Medical Debt?

This question poses an interesting dilemma for the landlord.  Probably the easiest answer to this lies in evaluating just how this person has dealt with other creditors.  It is one thing to be faced with a hospital bill of $50,000 that you cant pay and it is quit another to have a $300 overdue account with Target that has been turned over to collection.   The bottom line is that we have seen a number of very good tenants that have even had to declare bankruptcy because of medical debts that they could not pay.  These are justifiable reasons for a fresh start!   Often, tenants who have gone through a bankruptcy can be outstanding tenants if it can be demonstrated that they are truly taking advantage of the fresh opportunity they have to rebuild their credit.

Renters Credit is a Critical Tool for Landlords but it Can Be Misleading

Unfortunately, we have seen too many instances where there are errors in the credit report.   To avoid falling into this trap, we highly recommend that you always include a comprehensive background check with every renters credit report that you obtain.   And be aware that errors in credit reports can also include key omissions when the credit reporting bureaus neglect to include key data about your rental applicants such as judgments, evictions and tax liens.  When these items are not reported, it essentially means your applicant has a “false” FICO score.