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What Credit History Says About a Tenant – And What You Should Be Looking at Most

Marina Shlomov - Tuesday, July 14, 2020

What Credit History Says About a Tenant – And What You Should Be Looking at Most

You want a tenant in your rental property. You want to be able to receive your rent payment everything and feel confident in your investment. But, would any tenant do?

What if you are so anxious to fill your vacancy that you grab the first tenant that comes along. And, what if that tenant, well, has a history of not making payments on their credit cards and such. Then, what? Well, the short version would likely involve you going through a ton of paperwork in an attempt to evict your new tenant.

That’s a lot of hassle, right?

Now, if you had taken the time to thoroughly screen your tenant, you would have pulled their credit report. And, from that, you would have learned a lot of new information – and likely a few red flags, too.

Don’t Just Look at the Number

Many people – including landlords – tend to put much influence on the credit score. After all, this score tells you just how good a credit report looks overall. For instance, the higher the credit score, the more financially stable the individual tends to be and the less risk you will likely take.

Naturally, you will want to look for high credit scores, right? Here’s how they are generally rated per the Fair Isaac Corporation model:

Credit Rating

Credit Score

Percentage of Population

Exceptional

800 - 850

21%

Very Good

740 - 799

25%

Good

670 - 739

21%

Fair

580 - 669

17%

Very Poor

300 - 579

16%


As a landlord, the chance that you will find someone with exceptional or very good credit ratings is likely scarce. See, the majority of these individuals, though not always, are often settled in their own home, making the decision to purchase rather than rent.

Therefore, if you hold out for a tenant reaching one of these scores, you may end up with an extended vacancy. Lowering your requirements can lead you to be a bigger pool of potential tenants – and it doesn’t necessarily mean they are worse tenants.

What You Should Be Looking For

Doing a thorough credit check of your applicant can give you a bit more information than just that credit score. And, well, that’s a great thing since you can learn a lot from a credit history.

You will see things, such as:

  • Outstanding debt
  • Repossessions
  • Charged off accounts
  • Payment histories, including timely and late payments
  • Collections accounts
  • Open credit accounts
  • Payment amounts due in revolving accounts

All of this together can give you an idea of how financially stable your applicant is. Sure, he is she may be able to prove employment with pay stubs, but how responsible is that person with income? Credit history will allow you to see if payments are made on time and how much money is due each month to begin with. Will the income and the debt even allow room for your rent payment?

As you review the credit history, you will want to keep in mind that most people likely have a blemish or two on their credit report. And, being too particular can cost you a potentially great renter. Keep your search thorough.

When it comes to renting out your property, it is important to include a credit check with your application. Allow yourself the opportunity to gain some perspective as to the financial health of your future tenant. This is a very important part of the tenant screening process. When combined with all other aspects of the application process, it can allow you to gain a deeper insight into who may be renting your space.


Marina-Shlomov-Photo-Thumbnail
Marina Shlomov, a managing partner at ALH|Podland Rental Homes Property Management is the author of many articles on Landlording, Property Management, and Real Estate Investing. A residential builder in the state of Georgia since 1999, Marina is an investor herself. Her property management company is intended “For Investors” and “By Investors” for a simple reason – she knows what investors’ goals are and she works hard to reach their goals. In her spare time, Marina likes to spend time with her family, friends, garden, read and travel. Check her out at www.alhpodland.com. You can find Marina’s articles and comments at @rentalhomesatl on Twitter, on Facebook, Google+, Blogger. and YouTube,Bigger Pockets and REI CLub and LinkedIn.



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