Applicant with low credit score but stable high paying job
Rental Property Investor · Rochester Hills, MI · Member since 2016 · 49 posts · 18 votes
Applicant with low credit score but stable high paying job
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Taunton, MA · Member since 2015 · 45 posts · 24 votes
10yIf he makes a lot of money but had two accounts go to collection all while living at home, you're dealing with an irresponsible person. Let it sit or lower the rent a little to attract someone who might not make as much but has more integrity.
22 Replies
Pass.
He is the poster child for terrible tenants, a loser, a landlords night mare waiting to happen. He will cost you a lot of money and grief. A vacant unit is far less costly than a bad tenant.
On the other hand you could be the charitable landlord to give him a helping hand in life but then you would no longer be operating a business.
- Taunton, MA · Member since 2015 · 45 posts · 24 votes10yIf he makes a lot of money but had two accounts go to collection all while living at home, you're dealing with an irresponsible person. Let it sit or lower the rent a little to attract someone who might not make as much but has more integrity.
- Rental Property Investor · Rochester Hills, MI · Member since 2016 · 49 posts · 18 votes10y
Thanks for the responses @Thomas S.. I was just very confused how someone who is so reckless with their credit can land a respectable, high paying job. He also had several thousand dollars in credit card debt. I just don't get it.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
There are people that make 50,000 a year and turn it into 1 million in 5 years. There are also people who make 500,000 a year and are flat broke with tons of debt.
It's about money management. This person making 70k with how they handle credit points to a careless and cavalier attitude.
If they stayed at home for likely reduced or free rent and still had unpaid debt and collections it's not a good sign.
You might be better off waiting for someone else. At the very least get the parents on the lease if their credit and net worth is good.
- Investor · Grovetown, GA · Member since 2015 · 100 posts · 67 votes10y
Absolutely, @Joel Owens!
It's one of the major problems with society today. Many believe that if you have money to burn that you need to spend it. They don't understand how to live below their means.
@David McCracken I would also pass on this tenant. He seems to enjoy spending more than he makes. I hope things work out for you!
- 10yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
To give a different perspective, you don't want to rent to someone's first place they live alone.
Moving from parents house to yours is never a good idea. They just don't have the independence to take care of the place well or make sure their responsibilities are met. Certainly this isn't a hard and fast rule, but it's a very probably scenario.
- Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes10y
If this tenant is fresh out of school then he really hasn't had a chance to build a credit history. People tend to grow up quickly once they are on there own. You could always make the lease a month to month and give him a try if you are desparate to get it rented.
- 10yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
@David McCracken, time and time again I read in the forums about someone who was desperate to get a property rented, made an exception for a tenant who didn't meet criteria, and regretted it.
I think it's better to have a property sit empty for a month while you wait for the right tenant, than to have it sit empty for three months while you pour $5,000 into repair caused by a bad tenant.
You have to try really hard to have a 550 credit score.
- Rental Property Investor · Rochester Hills, MI · Member since 2016 · 49 posts · 18 votes10y
Thank you @Mindy Jensen and @Richard Capers Jr for your input. I just sent the applicant an email informing him that I wouldn't be further processing his application based on his credit history.
I know the place will rent, I just stress a lot knowing each week that passes by I'm losing 100's of dollars. Everyone is absolutely right that losing a few hundred dollars is much preferred over being stuck with a bad tenant for a year. I put a lot of work into the flat, and I just need to relax knowing my hard work will pay off and everything will work out.
Thank you again to everyone who commented and helped me with my dilemma!
- Taunton, MA · Member since 2015 · 45 posts · 24 votes10yIt's really important to consider the long term above everything else. If it sits empty for six months, you lose six months worth of rent. If you end up with a professional tenant because you rushed to save a few hundred bucks, you could lose years worth of rent (in my lovely state anyway), plus eviction costs, and possibly sink the property. Always always always consider the long term before making a move.
Years ago somebody I know was charged $35 by his bank for going overdrawn for a day by about n $2 because of a mistimed payment. The fellow refused to pay the charge and closed the account in protest. It now shows up on his credit report as delinquent and he has a low credit score.
Last year he finally persuaded his new bank to let him have a credit card. Because this card comes with interest free credit for the first 16 months it is maxed it out and he only makes the minimum payment every month, so his credit gets dinged because he is running a high balance relativeto his credit limit.
2 years ago same fellow couldn't get credit to buy his wife a new car. He used his wife's credit to get finance and for the past 24 months without fail or ever being late he has been given his wife $800 every month for car payments - that do not reflect on his own credit history.
Same fellow cannot get finance to buy a property because of these credit issues. So he owns all his units free and clear (he has no choice).
How do I know all this? Because that fellow is me.
I know people with high interest credit card debt that are one paycheck away from going under and being unable to pay their mortgage. Their monthly payment barely reduces their debt because it is mostly servicing the interest charges, but because they never miss a payment they are extremely profitable to the credit industry and so their credit score is in the mid 700's.
If you are a landlord that thinks that credit scoring mechanisms were erected to assist you I have news for you. A credit score is mostly a reflection of how profitable the credit industry think you will be to them. For the past 8 months I have been making timely payments on over $100k of debt (more than half of which is in my name) but it is all interest free and my credit score doesn't budge.
So before you take a credit score as gospel as you have been encouraged to do in this thread remember this.
A credit score does not pay your rent. A job does - and this fellow had a regular good paying one. For me his credit score would probably be the least relevant factor in my decision on whether to rent to him.
- Rental Property Investor · Rochester Hills, MI · Member since 2016 · 49 posts · 18 votes10y
@Ihe O. thank you for your input that was very helpful.
I almost called the prospective applicant to hear how he would justify his past financial mistakes. I'm glad I didn't, as I'm sure he would have feebly blamed the credit industry for their "rigged system" just like you have in your post.
This is a great lesson because applicants and tenants alike will attempt to emotionally appeal to the landlord to rationalize a red flag on an application or a late rent payment. It's important to stick to your system you have in place and not give an inch, or you risk putting your entire business in jeopardy.
Thank you for reaffirming this lesson. I denied the applicant in question, and I would deny your application as well. It's nothing personal, it's just business.
- Investor · Yokosuka, Japan · Member since 2014 · 631 posts · 184 votes10y
@David McCracken Good for you deciding to pass on that prospective tenan. Congratulations on your convictions and best wishes to find a responsible tenant that pays rent. takes care of your property and stays forever.
David in the future remember to never tell an applicant why they were rejected.
@Ihe O. As a landlord there are only certain pieces of information we can rely on to assess the quality of applicants. Their word is worth zero so if someone does not appreciate the value of having a good credit score, like yourself, you are unnecessarily making your life difficult.
A job indicates an ability to pay rent a credit score indicates a individuals level of responsibility in paying the rent. Every individual in business knows that a credit score is one of the most important metrics to success.
- Rental Property Investor · Rochester Hills, MI · Member since 2016 · 49 posts · 18 votes10y
@Thomas S. I've been telling every applicant exactly why they were rejected. The following quote was pulled from the Tenant Screening Guide hear at BiggerPockets:
"If you decide to deny an applicant, it is vital that you document your reasons why so there can be no question as to whether or not there was discrimination involved. By having carefully defined standards (see above) you have the ability to easily deny a tenant that does not meet your standards."
"When you do disqualify an individual, I always send a letter to them stating exactly why they were dismissed. This can be as simple as a form letter which you check a box stating why they weren’t approved."
Please let me know your thoughts!
A landlord should never disclose the reason for rejection. This is a standard policy in the business and should be included as one of your "carefully defined standards". The first paragraph is correct the second:
"When you do disqualify an individual, I always send a letter to them stating exactly why they were dismissed.
That is only one persons policy and is a very poor business practice.
When you have been in the business long enough you will learn the reason. At some point in time you will place yourself in a position of having to lie about the reason for rejecting and you never want to be in that position. For now you should simply not ever inform any applicant. To protect yourself the less information floating around the better.
@David
Unsurprisingly the nuance in what I said has flown over heads.
The primary goal of a credit score is to reflect your profitability to the credit industry. The reason people with bad repayment records have low credit scores is because it is not profitable to lend to them.
It is also not profitable to lend to me, all my borrowings are interest free, so I have a credit score that has stayed low and barely moves despite never missing a payments yet.
So I gave you some free insight into what the metric you are using really means and empowered you to use that information. Of course you are free to ignore it and keep your house vacant for as long as you can bear.
I have metrics too, just different ones. I just filled a 4 month vacancy. You see my low credit score also reflects my lack of engagement with the credit industry, hence with no borrowings to service I didn't have to come to a forum and agonise about whether to accept a tenant. Instead I just stuck to my metrics and waited for a tenant who met them.
@Greg Correct, peoples word is worth nothing. To be honest their credit score is worth little more. Although why you would conjecture that a landlord that believes then becomes reliant on a tenants word defeats me.
Some clarifications on the last post. First of all the final sentence should be read as - Why you would conjecture that a landlord who doesn't place significant weight on a credit score then becomes solely reliant on a tenants word defeats me.
Secondly I'm not making excuses, for anyone having a low credit score, I don't need to. I'm not trying to rent or borrow from any of you and your vacancy is not my problem. I'm simply saying why I personally wouldn't place that much weight in that metric. There are plenty of other things that I can and do look at.
- San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes10y
Originally posted by @Ihe O.:
Some clarifications on the last post. First of all the final sentence should be read as - Why you would conjecture that a landlord who doesn't place significant weight on a credit score then becomes solely reliant on a tenants word defeats me.
Secondly I'm not making excuses, for anyone having a low credit score, I don't need to. I'm not trying to rent or borrow from any of you and your vacancy is not my problem. I'm simply saying why I personally wouldn't place that much weight in that metric. There are plenty of other things that I can and do look at.
A credit score indicates risk. If your score is low, you either have not made payments on time, you have negative public records (bankruptcy or judgments) or your debt to available credit is too high. This information is also very useful to a landlord trying to judge whether or not you will be able and/or likely to pay your rent on time.
It's really no more political than that. But, you can tell yourself it's the big bad banking industry that's out to get you, and the number doesn't really reflect reality.
But, your report will tell the story. If the score is low, it will show why. And as a landlord, I didn't want your story. I wanted hard data I could look at that showed me the risk factor based on past performance with your use of credit and your commitment to make payments and on time.
I'm picturing talking to you about your application and hearing you tell me that your score is bad due to a conspiracy of the American banking system. And you can probably picture what I would have been thinking while listening to you lol.
Originally posted by @Account Closed:
A credit score indicates risk. ..
It's really no more political than that. But, you can tell yourself it's the big bad banking industry that's out to get you, and the number doesn't really reflect reality.
But, your report will tell the story. If the score is low, it will show why. And as a landlord, I didn't want your story. I wanted hard data I could look at that showed me the risk factor based on past performance with your use of credit and your commitment to make payments and on time.
I'm picturing talking to you about your application and hearing you tell me that your score is bad due to a conspiracy of the American banking system. And you can probably picture what I would have been thinking while listening to you lol.
The credit industry invented the number and there is a difference between what that number means to them and what it means to you. If as a landlord the nuance in their interpretation vs yours goes over your head then the LOL is on you.
Instead of picturing yourself being amused poring over my application you should picture yourself getting suckered by a person who has lost their main source of income but who still has a high credit score because they have managed to continue servicing their debt. Because that is far more likely to happen.
There are institutions (and no I don't mean payday lenders) that specialise in working with people with low credit scores because there is money to be made. Call them people with bad credit if you like, even if it is because they don't have a history of borrowing. Regardless of what name you put on them or what political or conspiratorial slant you see in a discussion about them there are landlords like me that are switched on to their profitability because we understand that we are a small business, not a big bank and so we don't have to play by their rules.
- San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes10y
Originally posted by @Ihe O.:
Originally posted by @Account Closed:
A credit score indicates risk. ..
It's really no more political than that. But, you can tell yourself it's the big bad banking industry that's out to get you, and the number doesn't really reflect reality.
But, your report will tell the story. If the score is low, it will show why. And as a landlord, I didn't want your story. I wanted hard data I could look at that showed me the risk factor based on past performance with your use of credit and your commitment to make payments and on time.
I'm picturing talking to you about your application and hearing you tell me that your score is bad due to a conspiracy of the American banking system. And you can probably picture what I would have been thinking while listening to you lol.
The credit industry invented the number and there is a difference between what that number means to them and what it means to you. If as a landlord the nuance in their interpretation vs yours goes over your head then the LOL is on you.
Instead of picturing yourself being amused poring over my application you should picture yourself getting suckered by a person who has lost their main source of income but who still has a high credit score because they have managed to continue servicing their debt. Because that is far more likely to happen.
There are institutions (and no I don't mean payday lenders) that specialise in working with people with low credit scores because there is money to be made. Call them people with bad credit if you like, even if it is because they don't have a history of borrowing. Regardless of what name you put on them or what political or conspiratorial slant you see in a discussion about them there are landlords like me that are switched on to their profitability because we understand that we are a small business, not a big bank and so we don't have to play by their rules.
Any smart landlord doesn't only go by the credit score. They also verify the current income, and anything else that can be legally verified. But, some employers and/or landlords won't give out information. The score is the one tool that can be relied on to give hard data on whether or not someone plays by the rules of financial responsibility in society.
Sure, there is money to be made on the rebels of society who are a higher risk. But, using the score tells a landlord how much risk is involved with that applicant. It's all about risk. If it's worth it to a landlord to accept that risk, great. But, knowledge is power. And more profitable.
Originally posted by @Account Closed:
Any smart landlord doesn't only go by the credit score. They also verify the current income, and anything else that can be legally verified. But, some employers and/or landlords won't give out information. The score is the one tool that can be relied on to give hard data on whether or not someone plays by the rules of financial responsibility in society.
Sure, there is money to be made on the rebels of society who are a higher risk. But, using the score tells a landlord how much risk is involved with that applicant. It's all about risk. If it's worth it to a landlord to accept that risk, great. But, knowledge is power. And more profitable.
You keep saying a credit score is hard data.
No.
The hard data in this case was this guys salary and the stability of his job. You all advised the OP to ignore the hard data that was staring him in the face and go with a number that is a rough guess and he posted a self-congratulatory message for doing so. Meanwhile the house is presumably still vacant.
You keep claiming that a credit score tells a landlord about risk but that's not even how or why banks use it. Credit scoring is a labour saving device used because banks (unlike landlords) have to adjudicate thousands of credit applications everyday. Banks don't stress if credit scoring leads them to a wrong rejection because there are a ton of other applicants in the pipeline they can lend to.How many landlords can say the same?
It is not worth it for the bank to incur the cost of employing extra labour to further scrutinize credit applications. However it is absolutely worth it for the landlord because she usually doesn't have a stream of other applicants and she doesn't have to worry about the extra labour costs.
Also banks do employ credit analysts who can revoke a credit scoring based rejection after reviewing how a customer operates their account. I know this because this is how and why BofA doubled my credit card limit after initial refusing to increase it at all based no my credit score. This is exactly what the OP here should have done, asked for and looked at the guys bank statements.
This has got nothing to do with rebels, or societal norms of financial responsibility. My coworker who is also a landlord ignores credit scores because his was once 780 solely because he was added to his fathers credit card account while he was still in college. Read the forums for other ways people can game their credit score.
As a landlord you do not have the volume of customers a bank does, you don't have their hiring costs and it is viable for you to invest the time to forensically verify and investigate information on an application. The next time the OP is fortunate enough to have an applicant in a high paying and stable job I would suggest he does so.
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