March 26, 2015
A Good Credit Score Does Not Mean Ability to Pay
Having great tenants who pay their rent on time and without issue is essential to the viability of the property. On the other hand, renting to the wrong person can become a burden when it comes to collection and cost thousands of dollars.
At first glance, a prospective renter may appear a great fit, and, prudently, you’ll check references and run a credit check to ensure that you have a quality candidate.
Take Jason for example. He was well spoken, well dressed, with references and had a good credit score. But then the cheques started to bounce. What happened?
A Closer Look at Credit Checks
Looking at the process, when a credit check is requested it includes the tenant’s name, date of birth and, only if they’ve offered it, their Social Insurance Number. The property manager will then pay a fee to receive information quickly, or wait days for the result, risking that a good tenant may slip away to another property.
The credit report lists the applicant’s loans and revolving debt over the past 6 years with an R rating from 0 to 9 for each. An R1 shows when a person pays on time and an R9 can reveal when an account has gone to collections or if there has been a bankruptcy.
In many cases, the property manager will simply look at the FICO credit score that accompanies the credit report to evaluate the applicant. This number is a result of a propriety formula that the credit bureau keeps secret and it translates data from the credit report into a score from 300 to 900. An applicant scoring 700 and above is considered to have good credit.
But what does the FICO number mean? Clearly, paying your bills on time plays a major role. However, credit bureaus can assign a better score to people who carry a month-to-month balance but who pay their minimum balances on time than to those who pay their bills in full.
Does the credit score really tell a property manager whether a tenant can afford to pay their rent over time?
A False Sense of Security
There is a lot of weight assigned to having a good credit score when evaluating any financial application and it may have bred a false sense of security among landlords.
It’s important to take a step back and look at the big picture when considering a new tenant. If property managers had reliable insights beyond a credit score, they could make better decisions about renters, saving themselves headaches and increasing revenue.
By going beyond a credit score, Property Vista considers 75 factors to better analyze an applicant’s financial viability. For instance:
- What is the applicant’s salary?
- What is the monthly rent for the vacant apartment?
- What is the rent the applicant is currently paying?
- Will there be a roommate?
- Is there a guarantor?
Collecting the answers to these basic questions and integrating them with financial data from the Equifax credit check gives property managers a more robust and reliable picture of the tenant’s ability to pay.
Property Vista derives the applicant’s mean income from their past location to their new location. Then we apply statistical analysis to the historical information in the credit report and probability analysis to the rest of the data.
Applicants, co-applicants and guarantors are evaluated simultaneously, automating the screening process and saving time for everyone involved.
The result is a simple-to-understand report designed specifically for property managers and available instantly on your mobile device, or wherever you may be. Property Vista goes beyond the credit score to give property managers insight that they’ve never had before, giving them the tools to make a solid rental decision.