Let’s say you just received an application from a prospective client for your residential rental property. An important consideration for you will be your credit history. But how important should this history be compared to other qualifying criteria, and how important should the credit score itself be compared to other criteria?
As a professional property manager, I place little importance on the credit score itself, but the history used to derive that score is very helpful. Credit scores can be useful to creditors who have to justify their decision-making to higher-ranking bureaucrats or perhaps investors. But in the property management business, this is rarely the case. Some professionals, perhaps those who are less confident in their own judgment or ability to make decisions, may ask a property owner to weigh in on the decision, but I rarely do this. In fact, I believe my ability to interpret credit history is one of the reasons the property owner hired me in the first place. And honestly, those who lean too heavily on this one criterion may really just be looking for an alibi: someone or something to blame in case things fall apart later. While it’s nice to be able to consider liability, this does nothing to remedy the problem, which was a decision made on a bad premise.
I’m certainly interested in the prospect’s overall credit picture, which is what the credit score represents, but I’m really more interested in why and how they got the score. In fact, the score itself isn’t even considered in my evaluation of the prospect. For example, if our prospect lost his job and had to let his house go into foreclosure, his score will be ruined for years. But I’m more interested in the money management discipline he displayed before and after that tumultuous event. That will tell me more about the character of the person than the score.
In my rating decision table, I put the highest weight on rental history. I want to know how long you lived in the same place and how well you treated the property during your stay. Did you pay the rent on time? Were bad checks presented? These are the kinds of questions I want answers to, and these are things that don’t show up on a credit report, because credit reporting agencies don’t consider rent a debt; Another reason to be wary of the score, which is generally designed to help creditors assess the risk of the loan, not the rent.
I am also interested in the tenant’s employment or source of income. Has a job? How long have you been employed by the same employer? How is your debt/income ratio? How stressful will it be for her to make rent payments? These are the kinds of questions I want to ask about your payout potential.
I’ll definitely look at credit history, but to me, rental history and source of income are far more important considerations in indicating how likely a prospect is to become a good tenant.