You are so excited, someone finally filled out a rental application.  You look at the credit report and the credit is score is between 540 and 580.  Your hopes drop.  They seem like nice people who have had a bit of bad luck and need a second chance.  Well, if that sounds familiar, you need to put on your detective hat, gloves, grab your blue light and start investigating.

Let’s investigate three common factors that affect a person’s credit.  I’ll set the crime scene (credit factors), give some clues and help you draw conclusions.

1.         Crimes Scene: Credit cards
Clues:  If a person does not have any open credit lines within the past 6 months, the credit bureaus will not give a score.  If a person’s credit card carries a balance of 50% or more than the card’s limit, the score can go down by as much as 40 points. 
I’ve unknowingly done that and my credit dropped drastically.  I paid the card off and my credit shot up. 

2.Some people are very responsible paying their bills, have little to no lates but still have a low credit score.  High credit card balances is often the reason.

A person with a lot of open credit cards also can negatively affect his or hers credit.  Keep the number of credit cards you use to a minimal.  Too much open credit is viewed negatively, because a person can get into debt very quickly.

Conclusions:  Verify the applicant has enough income to cover all of their bills and rent.  Ask to see a pay stub, call and talk with their employers.  Renting Authority can call and verify employment if you don’t want to hassle with it.

3.     Crime Scene: Medical Issues
Clues:  Medical bills can become uncontrollable for most anyone.  Even if you have good insurance, some treatments and emergencies can make most people go broke.  I have a brother who lost two sons in the past 14 month to cancer.  Beside the grief from losing two children, the bills are outrageous.

Conclusion:  Is this still a credit worthy person to rent to?
Look at the dates on the credit report where medical collections show.  Most medical issues I have seen cover a 6 month to 2 yr time period.  You may notice there are lots of lates in this same time period.  If after this time period you do not see lates, other collections, then the person is onto credit recovery.  This may be a good tenant.

3.         Crimes Scene:  Charge offs, Bankruptciesand Liens
Clues:  Public record information gives a lot of clues about a person’s credit worthiness.  I think we all agree that charge offs, bankruptcies, foreclosures and liens are bad.  None of us want them.  However, (and this is a big however), sometimes they really help a person’s credit in the long run.

Conclusion:  Charge offs are classified as satisfied and or open.  If it is satisfied, it means that a person paid off the debt even after a business wrote it off.  A person who satisfies a charge off shows character.  This is a person who cares about paying of their obligations. They are more likely to pay their rent. The same is true for liens.

Bankruptcies can help a person get out from under a financially difficult and oppressive situation.   Bankruptcies definitely hurt a person’s credit.  And it shows up for 7 yrs.

Clues:  The good in bankruptcies is it gives a person a second chance to rebuild their credit.  Look at the date of the bankruptcy and see if there have been other negative credit issues after that date.

Conclusion:  If everything is positive after the bankruptcy, the person is probably a good risk.  I have seen credit scores in the high 600s and low 700s with a bankruptcy in the past 3 yrs.

A good forensic investigation yields good tenants.  If you need help understanding a person’s credit, please call or write.  I am always glad to help.
Thanks,
Troy
888-674-9181
tboldt@RentingAuthority.com
www.RentingAuthority.com

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This entry was posted on Thursday, August 7th, 2008 at 8:42 am and is filed under How to Screen an Applicant, Landlord Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.