20 Mar High Credit Scores can be Deceiving…
At least once a week, an agent will ask about the credit score of an applicant so their homeowner can decide whether to accept the application or not. Truthfully, even after all these years, I am still surprised not only by the actual question but the emphasis people place on that mysterious number. Why is this such a big deal?
In Northern Virginia, applicants may complete the NVAR form to apply for rental properties, or at least they do with our firm. The application asks a variety of questions, including: employer information, landlord information, pet information, etc. Applicants are also suppose to provide pay stubs, W-2’s, tax returns (if applicable), copies of driver licenses and a slew of other documents. Armed with that information, the listing company can now start the credit and background check.
Scenario A – company runs credit through a 3rd party provider and receives a report that supplies an actual median credit score of 685. Such company has set guidelines to advise their landlords that range of credit scores are either acceptable or unacceptable to move forward with applicants. For this example, let’s assume guidelines are such that this applicant is acceptable. A lease is drawn and the applicant becomes a tenant and moves into the property. After 3 months, the applicant is late in paying the rent. During interim inspections the house shows above wear-and-tear and the yard is in serious need of cleaning up. But they had such a good credit score?
Scenario B – company runs credit through a 3rd party provider and receives a report that shows revolving and installment credit history, they verify employment and get written feedback from previous and current landlords about the rental history, condition of the property and overall interaction with such applicant. The credit history has some issues and shows that applicant has struggled with a few payments over the last couple of years but shows that payments, such as utilities are being paid on a regular basis without delay or delinquency records. The applicant also receives strong positive feedback from his current and past landlords who would re-rent to them if needed. A lease is drawn and the applicant becomes a tenant, moves into the property and pays the rent on time for the entirety of the lease. During interim inspections, the property is clean and in good condition with no damage or above wear-and-tear.
How is this possible? Scenario A seemed like a sure thing based on the credit score! What Scenario A failed to accept is the simple fact that the reporting for on-time rent payment or lack thereof was impossible for landlords or property managers to do until services such as RentTrack or PayYourRent came along. Hence, that particular part did not impact people’s credit score. Therefore, you might have had applicants that appeared to be the perfect tenant based on their credit score but if companies failed to get other references they might have never known that those applicants had previous delinquencies with their rent or unsatisfactory move-out reports with landlords. Only if landlords went through the lengthy process of court evictions and actual debt collection would it have impacted someone’s credit score.
What does this mean if you’re out looking for a rental and are facing a credit check? Ask what the procedures are that the company follows, what kind of information they verify and how decisions are made to either accept or deny applicants. If you’re working with an agent, they should be your best advocate in ensuring that the process is fair and thorough.