The holiday season generally shows fewer people moving into new rental properties. The lull before the busy summer months may be a great time for property managers to review the processes they use when considering rental applications.
Tenant screening is a vital part of acquiring residents who will pay rent in a timely and consistent fashion. Though several factors can influence a property manager’s decision on whether or not to accept an application, a potential tenant’s credit score is perhaps the most notable. Understanding the importance of a credit score as an indicator of tenant acceptability—and understanding what the different number ranges represent—is an important part of the screening process.
Credit Scores: How They Work
Typically, when a new tenant submits an application, it will include their name and social security number, which will allow a prospective landlord to request that person’s credit report from any of the three major credit bureaus. The credit report will contain more detailed information about a person’s credit history, but will also include their credit score, which ranges from 300 on the low end to a maximum of 850.
A score in the range of 300 to 579 is considered poor, scores in the 580-669 range are considered fair, those in the 670-739 range are considered good, 740-799 are considered to be very good scores, and anything over that range is considered exceptional.
How It Breaks Down
About sixteen percent of consumers have poor credit scores, though that number has generally been trending upward. Most people have a credit score in either the fair (seventeen percent) or good (twenty-one percent) range, while a quarter of us have very good scores, and approximately twenty-one percent of us enjoy an exceptional credit score.
You may think that it would be prudent to only accept tenants in the exceptional range, but there are a couple of significant problems with this approach. First, you would be ruling out almost eighty percent of the population—the majority of potential tenants. Secondly, people with an exceptional credit score typically buy their own homes and generally don’t rent.
What Those Numbers Mean
In terms of financial reliability, a good credit score—in the 670-739 range—represents only an eight percent chance that a person is likely to become seriously delinquent. Though it’s not a guarantee, the vast majority of people in the good range will likely be reliable tenants who pay on time.
Using this as a general guideline, you can review the details of a prospective tenant’s credit history to make a better determination of their suitability. Their full report will indicate things like any prior evictions, how much debt they currently have, whether they have been seriously delinquent in payment to previous landlords, whether they have filed for bankruptcy, and other factors that will help you make a better decision. If a tenant has a low credit score but limited debt and no history of delinquency, their low score could just be an indication that they haven’t been building credit for a significant length of time.
Ultimately, though a very good indicator, a person’s credit score shouldn’t be the only determining factor, but rather a starting place for a more comprehensive picture of the likelihood they’ll be a reliable and consistent tenant.