It’s natural to want to fill a vacant spot at your property as quickly as possible when one occurs. But in most situations, it’s preferable to properly vet your renters so you can be confident you rent out the home to a candidate who will pay you regularly, on time, and ideally for as long as possible.
In this case, credit scores are good criteria for screening potential tenants. Again, you can hire a full-service property management company for this process. First, however, knowing what constitutes a decent credit score for tenants is essential. You must then understand how to use credit scores to evaluate tenants when reviewing rental applications.
Your business’s success depends on selecting dependable tenants; examining credit scores will help you accomplish that more effectively. Although it is only sometimes requested on rental applications, screening tenants’ credit reports are usually checked as part of the process. Continue reading to learn more about credit scores and how they can help you enhance your tenant screening process.
What is a Good Credit Score for Tenants?
Someone with a credit score of 670 or above is already at or above the US average. A good credit score for renting will be lower than a good score for purchasing a property.
A credit score of 670 or higher is quite suitable for most rentals. However, since renters need the credit history of making mortgage payments to increase their credit score, most landlords prefer a score of 600 to 650.
It’s also vital to know that credit bureaus may have different definitions of a good credit score. This is so because every credit bureau calculates the number differently. However, regardless of the credit agency from whence it was obtained, a credit score of at least 670 is generally regarded as good.
The level of debt and the amount of credit that a person has access to can affect their credit score. In essence, it can offer you a general idea of how trustworthy they are and whether they will pay you consistently and on time.
What Information To Look For in a Credit Report
- Credit Score
A credit score determines a consumer’s creditworthiness, ranging from 300 to 850. Likewise, the score level of a tenant shapes how potential landlords will look at them.
A credit score depends on several factors, ranging from credit history and the number of open accounts to the total amounts of debt, repayment history, and other criteria. Lenders employ credit scores to assess the likelihood that an individual will punctually reimburse their loans.
Landlords use this information for tenant screening and insurance.
- Payment History
Payment history can reveal a tenant’s dependability when making rent payments. It is incorporated into your credit report and plays a vital role in credit scoring formulas—accounting for a minimum of 35% of some credit scores.
A tenant’s payment history in credit reports displays payment details regarding credit accounts. It may also include the number of accounts they’ve reimbursed on time and how long overdue their current or prior payments are.
Other information a payment history shows include the frequency of late payments appearing in a credit history and the last time a tenant had delinquencies, collections items, or bankruptcies.
- Debt Ratio
High quantities of outstanding debt are another critical concern to landlords. Although it seems paradoxical, a tenant’s odds of obtaining credit are higher the less debt they have. The direction here is comparable to that of payment history. If a tenant has a substantial quantity of existing debt, the likelihood of paying it back reduces.
Importance of Risk Assessment on Tenant Applicants
- Locating Good Tenants
One of the most critical requirements for tenants is complete and timely rent payment. However, pursuing occupants for late rent installments can be tedious and unpleasant, particularly if you’re busy or have a family.
One benefit of risk assessment is locating tenants who will make timely rent and bill payments and take good care of your property. A risk assessment on tenant applicants also helps you avoid tenants’ evictions which can also go on to cost you a lot of time and money in legal fees. You can prevent this process by concentrating on implementing a quality risk assessment on tenant applicants.
- Property Protection
Investment properties are likely to mileage. Most of the time, general repairs need to be done between tenancies. However, you may discover that your tenants have left the property in deplorable condition in some instances.
Carrying out a risk assessment on tenant applicants can help you avoid this unwelcome surprise at the end of a tenancy. Again, a property management company comes in handy here. This process can make all the difference and ensure the prospective tenant will treat your property with respect and cleanliness.
- Reputation Protection
Your rental is likely situated with a few different property holders. If you rent your unit to a bad tenant, you jeopardize your reputation with the other tenants. You could avoid all of this when you conduct a risk assessment.
Additionally, a low-quality tenant may result in building turnover, which may necessitate additional marketing costs on your part. Finding new tenants to take over other units in the building may also become increasingly challenging. Before moving in, most tenants conduct research on the building. New tenants may only avoid your rental if you have a good reputation for allowing unsociable people to live there.
Ensure new tenants are good neighbors. The risk assessment of tenant applicants will assist in the elimination of particularly unsociable tenants. In addition, the screening process can predict how your tenants will behave by conducting thorough interviews and checking their references once they have settled in.
Conclusion
Numerous people can’t buy a home due to an absence of assets or a deplorable credit score. However, most of them make a reasonable choice to rent a place. As landlords, it’s essential to thoroughly analyze prospective tenants’ credit scores and other related information. A FICO rating in the low 600s is the base score for tenants expecting to lease. In all, tenants with scores close to that also have good chances of renting an apartment.
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