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How to
Check Tenant Credit Effectively
Tenant Credit Check Landlord Guide PART 2
If
you own or manage rental properties, a credit check
landlord will be your best friend for picking reliable tenants and
ensuring
painless rent collection. Learn how to check tenant credit and uncover
critical info from your
tenant's credit report in this Part
2 of our Tenant Credit Check Landlord Guide.
Do you know
why tenant credit checks are so important and how you can
obtain credit reports? If No, Click here for Part 1
of this Guide on How to Check Tenant Credit.
What
Exactly do the Scores in Your Tenant's Credit Report Mean?
The
very first thing that you should pay attention to is
the credit score itself. Your tenant's total credit score gives you a
quick overall snapshot of how likely he will be punctual in his rent
payments. The two major scoring systems that you must know for a credit
check landlord are the FICO score and VantageScore.
FICO
is by far is the most popular and widely used credit score to check
tenant credit.
FICO scores range from 300 to 850 - The higher the score, the more
likely he is a reliable rent payer. Someone with more than 750 points
has excellent credit while a score of 660 to 720 is considered average.
Anyone with less than 620 points is a risky tenant.
VantageScore
was introduced in 2006 to standardise the scoring system offered by the
major credit bureaus. VantageScore ranges from 501 to 990 points -
Similarly a higher score means a better tenant with a lower risk of
rent default.
To make it
easier to understand, there is a
grade attached to every score - A is from 901 to 990, B is from 801 to
900, C is from 701 to 800, D is from 601 to 700 and finally F is from
501 to 600. For your credit check landlord, a tenant with A or B grade
is favourable, C is average while you should try to avoid renters with
a D or F grade.
This credit score is also handy when it comes to deciding your rent
amount. If a tenant
applicant suffers from a lower score, you may want to charge him more
rent for the
additional risk. Using the same logic, you may want to attract a tenant
with excellent credit scores with lower rents.
Other
Crucial Information that You Can Dig up from a Credit Report
Credit reports comes from a reputable tenant screening company such
as E-Renter and Tenant Verification Service
will
contain other important information that can help
you choose the right tenant.
Firstly take a look at his employment information. Your tenant should
be employed with a stable job and his income should be at least 3 times
your asking rent. This is to ensure that he will have enough money left
for the rent after deducting his other daily expenses.
Are you looking for landlord references? Then scroll down for the list
of his current and previous addresses. Some landlords may give
excellent references just to get rid of a nightmare tenant so it's a
good idea to double check with at least 2 previous landlords.
Since most tenant credit check landlord will also include dates, you
should be
suspicious if he frequently changes addresses within a short period of
time. Does he have to move often because of his work / family or is he
being regularly evicted by his former landlords? This is especially
important if you are looking for a stable, long term tenant.
When you check tenant credit, don't forget to go through his credit
history. The critical
things to watch out for is his total balance, monthly payments and
accounts that overdue for 90+ days.
Multiple accounts that are overdue
for 90+ days are a serious warning signal because it implies that your
tenant either does not want to or doesn't have the money to pay off his
debts.
While it's natural for everyone to have their fair share of consumer
debts, the amount that they owe should be reasonable compared to their
income. Your tenant should have a healthy sum of money left over each
month after deducting the rent and his monthly debt payments.
Next
learn how to deal with tenants with a limited credit history and what
you must do when rejecting someone due to his tenant report:
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