What kind of credit score are you looking for when screening tenant applications?
In our experience, landlords either don’t care enough about credit history when they’re looking for tenants, or their standards are too high. It’s unlikely you’ll get a lot of applications from prospective renters with an 800 credit score.
We use credit scores in our screening process because we know they can reveal whether a prospective tenant is trustworthy with credit, if they have a lot of debt, or if they fulfill their financial responsibilities. But they don’t paint an entire financial picture, do they?
Credit scores can be high, but that doesn’t mean the person attached to that score is a reliable tenant. People with good credit can break a lease just as easily as people with challenged credit. Individuals with a 550 credit score can turn out to be perfect tenants.
You don’t always know. And so we recommend that you do check the credit score. But, you shouldn’t stop there when it comes to a robust screening process.
Here’s what rental property owners need to know about tenant credit scores.
Quick Overview:
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Using Credit Scores as Qualifying Rental Criteria
One good reason to check a tenant’s credit score is that you may use credit as part of your qualifying process. We always recommend that landlords establish a set of written criteria before they begin collecting applications and screening tenants. This helps you keep your screening process consistent and documented.
You don’t want to run into any fair housing claims or complaints, and when you can demonstrate that every applicant is held to the same set of standards, you’re doing a good job of protecting yourself.
A credit score can be one of those standards. You could establish that you won’t approve anyone with a credit score that’s under 600, or whatever you feel comfortable with. This will let prospective tenants know where you draw an early line in terms of approving applications and denying them.
Credit Reports versus Credit Scores
The credit score should absolutely be part of your qualifying criteria, but don’t look at the score without evaluating the full credit report. There’s a lot of valuable information that you can use during your screening process.
- For starters, you’ll want to use the credit report to validate the information your tenant has provided on their application. You can make sure the social security numbers and names match as well as the current and past addresses.
- You’ll also want to look at what kind of debt the tenant carries and whether they’ve been responsible in paying it back. A lot of credit scores are ruined by excessive student loans and medical debt. Falling behind on an expensive medical bill is a lot different than walking out on a lease agreement.
- Look for past evictions and any money that’s owed to former landlords or apartment communities. You don’t want to see a lot of unpaid utility bills or other housing-related balances.
It’s not just the credit score that’s important when you’re screening and placing tenants. You want to get a full understanding of how potential tenants approach money and their financial obligations.
The Fair Credit Reporting Act
When you’re gathering credit information on tenants, you have to follow the federal law that protects their privacy and their access to credit information. Make sure your rental application grants you permission to check their credit. If you deny a tenant based on their credit score or credit report, you need to send a letter with specific wording that tells them this and offers them a chance to review their credit report.
Are Credit Scores on the Decline?
If you screen as many tenants as we do, you might have noticed an interesting trend.
Credit scores are not as high as they once were.
According to the Fair Isaac Corporation (FICO) and economic news outlets, scores have been slipping over the last few years, and that’s due to:
- Inflation
- Rising interest rates
- Increased household debt
- Overdue student loans
These factors mean that even financially responsible individuals might find it harder to maintain high credit scores as they juggle mounting financial obligations. For homeowners and existing tenants, it’s a minor inconvenience. For tenants who are looking for a new rental home, they’re likely going to be nervous about your credit check and unsure of whether they’ll meet your qualifying rental criteria.
How should you respond, as a landlord?
Good credit is an important metric when you’re evaluating applications. But, relying solely on credit scores might cause you to miss out on potentially excellent tenants who are creditworthy in ways that a credit score alone doesn’t reflect.
Credit and Tenant Screening
You want to see a strong credit score, but renting to someone with a lower number is not necessarily a major risk. You want to look at the screening report as a whole.
We’re not suggesting you stop screening for credit. We are, however, recommending that you put extra weight on income and rental history when you are screening tenants so you aren’t limiting yourself to a smaller-than-average tenant pool.
In addition to the credit score, here are some of the things you’ll want to consider as you make decisions about what you want to see in a qualified tenant.
- Employment and Income Stability
A strong and consistent rental history, coupled with steady employment or regular income, may be a better indicator of the ability to pay rent than a credit score alone. Verify that your applicant earns enough income to cover their rent and other expenses (typically, a monthly income that’s 3x the rent is a good standard).
- Rental History
You should be curious about how a tenant has performed in the past. An applicant’s rental history holds invaluable clues to their reliability as a tenant. Did they pay their rent on time? Did previous landlords encounter any issues? A reference check can provide these insights. Ask for landlord references.
- Debt-to-Income Ratio
Credit scores don’t show the full financial picture. Reviewing an applicant’s debt-to-income (DTI) ratio can give you a better idea of their ability to manage monthly obligations, including rent. You can also use their full credit report to determine whether they prioritize their housing payments.
- Background Checks
A proper screening process should go beyond just finances. Conducting a thorough background check can reveal an applicant’s eviction history, bankruptcy, or other red flags that could be risks to your property.
Sometimes, context matters. Giving a prospective tenant the chance to explain their financial situation can set you apart in a rental market where tenants increasingly feel under-valued. Perhaps their credit score dropped because they paid off significant medical bills or incurred a temporary loss of income, and now they’re working hard to get back on track.
Open communication demonstrates flexibility while still demanding accountability and due diligence.
Keeping Your Screening Process Consistent
It’s up to you to establish a credit score requirement when you put together your screening criteria. Wherever that score lands, remember the importance of objectivity and consistency.
You cannot require a 650 credit score for applicants and then approve someone with a 600 score. All the other people you reject because of the credit score would have a valid fair housing complaint.
Evaluating credit scores against the backdrop of a full screening report can either confirm what you have learned about an applicant or raise questions. Feel free to adjust your screening criteria, but make sure it’s applied uniformly to every applicant.
Working with Professional Property Managers to Screen Tenants
Why risk a screening process that feels frantic because of credit scores and potential fair housing mistakes?
There’s no need for landlords to manage this more comprehensive tenant screening process on their own. As property managers, we screen tenants every day for rental property owners, and we can make sure that well-qualified tenants are placed in your property, whether their credit score is impressive or something to look at a bit more closely.
We use advanced software and tech tools that can streamline and enhance our ability to assess applicants. This leads to faster decision making, which expedites the application process without sacrificing the quality of our assessment.
It’s important to have confidence in your tenant choices. A property manager who understands screening can provide the peace of mind you need as well as a highly qualified tenant who can be trusted to pay rent on time and take care of your property.
Creating a screening strategy that includes credit scores, but does not base decisions solely upon them, demonstrates adaptability and professionalism. It also shows tenants that you’re a proactive investor who values tenants as individuals, not just numbers in a credit report.
By remaining informed, using modern tenant screening tools, and maintaining open communication, you can successfully secure reliable tenants while protecting your bottom line.
We know that tenant screening is about managing risk. Please contact us at New West Property Management. Our team expertly manages residential rental homes in Las Vegas and throughout Clark County, including Henderson and North Las Vegas.
