Self-Managing My Rental -#2 of The Application Series, The Credit Report
The Credit Report
The credit report is one of the tools to use in the "whole person" approach to choosing a tenant. The source that you use to obtain the credit report will determine the number of bureaus you receive. The three bureaus are Equifax, Experian and TransUnion. The bureaus report similar information, but not identical information. The more bureaus you receive, the more complete the information is about the applicant's credit, but a decision can be made with just one bureau report.
What is important on the Credit Report?
The credit report alone gives a wealth of information including credit scores for each bureau, loans, credit cards, bankruptcies, judgments and more. The credit score alone does not tell the story and should be weighed with all of the information given on the application. A one-time event in a person's life, such as an illness, a death in the immediate family, a job loss or a divorce, does not define that person. A pattern of behavior is more important than a one-time event.
Patterns to look for
- Has the applicant had late payments in the last 12 months? If the applicant is, or recently has been, struggling, the expense of moving is not going to help the situation unless they are reducing their expenses with the move. If they are not reducing their expenses, then they most likely have unreasonable expectations of their ability to pay.
- Has the applicant filed bankruptcy multiple times or have they filed bankruptcy and after the bankruptcy continued not paying or paying late? Bankruptcy is an opportunity for a person to "reset". If they are not able to "reset" successfully by rebuilding credit and paying bills on time, they are more than likely going to continue the bad habits and behavior.
- Does the applicant have multiple foreclosures or evictions? Multiple foreclosure and evictions show a pattern of "moving on". Ideal tenants settle in and stay put.
- Does the applicant have multiple judgments from apartment complexes? A search of public records may not reveal all evictions because the applicant may have lived in multiple counties and/or states. Judgments are filed by former apartments or landlords for evictions, money owed or damages.
Information to compare
The credit report also contains information that should be compared to the information submitted on the application. Information should be compared for confirmation of identity, credibility, verification and ratios. The credit report can contain incorrect information, but at a minimum, it is best to ask the applicant why there are differences. Ask in person or on a live phone call. We will cover this more in The Verification blog.
Have you experienced identity theft?
Some information to compare
- Applicant's name
- Birth date
- Social Security number
- Addresses - Current and past
- Monthly payment obligations
Other information to review
- If the applicant is applying for a rent to own, lease option or owner financing, then it is important to review judgments and liens. This will be addressed in detail in The Decision.
- The credit score will have a summary that explains what was taken into consideration when scoring the applicant. This helps establish the pattern.
Now you can analyze the mass of information provided on the credit report. The next segment in the Applicant Series will go over how to perform the verifications.