Knowing how to read and check tenant credit reports is an essential skill for every landlord. Learn how to interpret credit report scores for prospective tenants here.
Tenant credit scores gives you the big picture of their credit worthiness. Higher scores indicate a better tenant who is less likely to default on rent payments.
There are two major system for credit scores: FICO Score and VantageScore
FICO is the most popular scoring method for credit reports. FICO scores range from 300 to 850:
VantageScore was introduced in 2006 to standardize the scoring method used by the major credit bureaus. VantageScore range from 501 to 900 points:
Tenant credit report scores aren't just helpful for tenant screening; It's also useful when you are deciding how much rent to charge. You may want to entice a tenant with excellent credit with lower rents while asking more rent from tenants with poor scores (since you're taking on more risk).
Credit reports from reputable tenant screening companies such as Tenant Verification Service and E-Renter will contain other valuable information that can help you choose the right tenant.
First check the tenant credit reports for employment records. 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 has enough money left for the rent after deducting his other expenses.
For landlord references, scroll down for the list of his current and previous addresses. Some landlords may give glowing references just to get rid of a bad tenant so it's good to double-check with at least 2 ex-landlords.
Be wary if your applicant frequently changes addresses and doesn't stay in the same place for a long 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 going through credit reports for prospective tenants, pay attention to their credit history. The essential things to watch out for are his total balance, monthly payments and accounts that are overdue for 90+ days.
Having multiple accounts that are overdue for 90+ days is a serious red flag. It implies that your tenant either does not want to or doesn't have the money to pay off his debts.
While it's normal for someone 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 each month after deducting the rent and his debt payments.