No Fico score renter =585 Fico more or less?
Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
No Fico score renter =585 Fico more or less?
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Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
8yOriginally posted by @Account Closed:
How do you equate a potential renter with no fico with a low fico potential renter?
For me anyone with a fico below 560 is probably a life long deadbeat, and anyone with no credit file, probably is also a dead beat, but they could have no credit for many reasons other than their lack of credit worthiness, so I assign 25 gamble points to the no credit renter and treat them as equivalent to a 585 fico. While underwriting considerations given to compensating factors may carry the day for you, I find raw numbers have their own value as well. How would you equate no fico, if you were to think about the fico value equation?
Well, I guess the first thing to point out is that a score is just that - a score. It is, otherwise, meaningless. The best definition I've ever heard of a credit score is "a numeric representation of someone's likelihood of going 90 days or more late on a payment in the next two years".
That said, no one has actually has a score - until their credit is pulled, and then the resulting score calculation is based on the information available at that time. Then, that score "expires" because credit info changes constantly as people use (or abuse) their credit. If my credit is pulled today, that's my score today. Tomorrow - or even minutes from now, it can be different.
The real value is in the credit report resulting from that pull.
A recent retiree could have sterling credit - until their income becomes one quarter of what it was when they were working.
Anyone can have sterling credit - until an illness or injury lands them in the hands of the healthcare syndicate. Then, all bets are off.
My point is that the "lifetime deadbeat" thing probably is not appropriate until you look at the actual credit report resulting from the credit pull and see what's REALLY going on.
My credit mentor says that scores get no one approved, but can get anyone rejected.
For what it's worth ...
25 Replies
I do not equate. My screening requires a minimum 650 score. I can not guess what score any individual may have therefor reject any applicant that does not have a score.
One principal I have always operated on is to never work to try and make a applicant acceptable. They either pass or fail based on the raw data.
I assume if a applicant has no score somone else will rent to them.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes8y
Originally posted by @Account Closed:
How do you equate a potential renter with no fico with a low fico potential renter?
For me anyone with a fico below 560 is probably a life long deadbeat, and anyone with no credit file, probably is also a dead beat, but they could have no credit for many reasons other than their lack of credit worthiness, so I assign 25 gamble points to the no credit renter and treat them as equivalent to a 585 fico. While underwriting considerations given to compensating factors may carry the day for you, I find raw numbers have their own value as well. How would you equate no fico, if you were to think about the fico value equation?
Well, I guess the first thing to point out is that a score is just that - a score. It is, otherwise, meaningless. The best definition I've ever heard of a credit score is "a numeric representation of someone's likelihood of going 90 days or more late on a payment in the next two years".
That said, no one has actually has a score - until their credit is pulled, and then the resulting score calculation is based on the information available at that time. Then, that score "expires" because credit info changes constantly as people use (or abuse) their credit. If my credit is pulled today, that's my score today. Tomorrow - or even minutes from now, it can be different.
The real value is in the credit report resulting from that pull.
A recent retiree could have sterling credit - until their income becomes one quarter of what it was when they were working.
Anyone can have sterling credit - until an illness or injury lands them in the hands of the healthcare syndicate. Then, all bets are off.
My point is that the "lifetime deadbeat" thing probably is not appropriate until you look at the actual credit report resulting from the credit pull and see what's REALLY going on.
My credit mentor says that scores get no one approved, but can get anyone rejected.
For what it's worth ...
- Not having a score is not equal to a bad credit score. I would never rent to someone with a terrible credit score because it means they are living above their means and not able to keep up with their debt payments. I would be concerned that they would not pay the rent on time. However, if they do not have a credit score then it likely means they are able to pay cash for their expenses and do not have any debts. If they do not have debts then I would need to worry less about them being able to afford the rent. The only exception to this is if the tenant is 18 and does not have a credit score I would not rent to him or her because it is too early to know if they will be responsible and I do not want my property to be their first experience living on his or her own.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Age discrimination, a federal fair housing violation.
- Amherst, OH · Member since 2016 · 12 posts · 3 votes8y
I can say a few years ago I never checked my credit score. This was before credit karma and such. At one time, I had no credit cards, car was bought cash as well as any other purchases (before I bought my house). So I would have had a low or no credit score. But I always paid my bills on time. Sometimes credit score is not accurate. I think looking at references, how long they've been at their current job etc and maybe talk to last landlord. That may be more accurate.
- Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes8y
Always look at credit report rather than score. Someone says a low score shows that someone is living above their means. Well, in 2010 I was diagnosed with stage 4 cancer, and suddenly my means changed. I fell behind on some things and had super high medical collections. My score dropped all the way down to 520. When I moved to Chicago, after recovering and in full remission, I applied to rent an apartment (the one I'm in now 5+ years later), the owner looked at my REPORT. I sent a letter explaining what happened, and he said to me, your report shows that's exactly what happened. He took a chance and he made out.
Also there are credit repair companies out there that will help you dispute EVERYTHING on your credit report, making it look clean for a certain window of time, but then all that bad history comes back after the debts are affirmed. I do credit restoration too, but I won't do it unless you also allow me to establish a 2-year spending plan/budget. Otherwise you're just throwing money away because you haven't learned how to control spending.
"He took a chance and he made out."
This is the most important part of your post. He took a chance and could have been wrong. "Taking a chance" based on negative screening results equates to tossing the dice when renting to total strangers. Every landlord determines how much risk they want to add to their business. Screening is intended to reduce risk to the lowest possible level. Look for reasons to reject not reasons to take a chance. We are not social workers.
I know there are plenty of landlords willing to take risks, some win some lose, I prefer to increase my chances of winning by not betting on bad cards.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
I I only look at the report, not the score. If I see a bump in the road, meaning a 6-12 month period where all the late payments/judgement/collections occurred, and since then the report has been good I will rent to them. If I see more than 3 late payments in the last 3 years or a pattern of late payment over the 7 year report I will not.
I also am more forgiving to medical bills, and less forgiving to utilities
Second City Real Estate4.821 Reviews - Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Thomas, if I knew nothing about credit, I would just follow your model on the 650 fico, the law of averages not only favors your methodology, but the elegance of it puts you in a better spot, should anyone make a claim you were acting discriminatory. I have rentals class C to C+ rentals, holding out for a 650 fico would often mean more vacancy and lower rent, so I elect to be more flexible, and probably take on greater loss risks than you do. My biggest tenant damage was from a 23 year old recent college graduate with over a 700 fico who always paid the rent on time.
@Account Closed,
If you are just a computer, reject and move on. Immediately thinking someone is a "deadbeat" because of a low score suggests to me that you don't know how to look at the full picture. We always prioritize income and job stability as #1-- that's your source of income, so how stable is it? Have you asked that to explain what happened, and does it make sense? Was it medical bills? Maybe a divorce? Does the story make sense, and have you checked the local district court to verify if there's anything more? Just giving a raw number, IMO is silly, personally, I have gone from an 806, to when I had to finance some investments and took on debt, i got down to 576, but now I'm back in the 780's.. so yeah.. look at the person, and the story, and fact check!
If the person is a deadbeat, and honestly, there are some real deadbeats out there who are irresponsible, it will be obvious with the story, because things won't match. Someone once tried to tell us the "McDonald's pay stub system is down, that's why he couldn't provide a pay stub." Verifying work and references is crucial, and do your investigative work to determine if the person is good or not! Did they say they had 1 eviction-- but have had 6 dismissed, that's shady! The more you research them, and VERIFY the better. I always say-- I can take a past, I can't take a liar.
Also, do M2M leases!
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
"For me anyone with a fico below 560 is probably a life long deadbeat, and anyone with no credit"
Linda, I said anyone with a 560 fico is probably a life long dead beat, I didn't say I thought they were a life long dead beat. The mathematical probability as I stated just leans toward their being more likely to be a life long deadbeat. Evaluation of credit is both an art and a science, there are advantages to setting minimum standards, also advantages to making exceptions. Someone can have recent bankruptcy and a 700 fico, are they a good credit risk?
- Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes8y
@Account Closed, I had someone report something to my credit last year in error. I don't even remember what it was, but it was definitely an error, and my score dropped 200 pts!!! I had to immediately dispute it and get it cleared up, and my score was restored within 30 days. Scores mean nothing by themselves.
- 8yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votesLook at the pattern of payment. Also no credit is no credit in the last 7 years. I have had people apply who used to own homes and had no credit score. None because it was more then 7 years. I am still working on my sons credit report because an idiot employer used the wrong SSN and you dont want to know how hard that is to fix.
- 8yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
I am an underwriter and nobody has ever mentioned measuring a persons credit worthiness as art, or science, it's just 1 part of assessing their risk. In your evaluation, you have used neither art nor science.
Assigning a personality trait to someone (deadbeat) based on a hypothetical single credit score is brash, to say the least. You should really asses the credit report rather than the score, the score is far less useful. In underwriting, credit is only a small part of how we assess who and how to lend to someone, you would be well advised to use a similar method.
Job stability, personality, Income are far more important factors than credit score, this is how you evaluate a potential tenant when they have no score. If they have a poor score and you don't' want to deal with them then you don't have to, rendering this post moot.
@Account Closed I go over my applicants reports with a fine tooth comb. I study them but not unless they are above my minimum 650 score. If I set a minimum standard and then accept a applicant with a lower score I open myself up to possible charges in the future when I reject a applicant with a score below 650. I use my minimum scores to eliminate those applicants that I would otherwise be accused of discrimination against. I never want to lose the ability to reject high risk applicants when using their credit score is my only option. I could give many example's but for obvious reasons will not.
It makes no difference to me why a score is below 650. Until a applicant reaches my minimum threshold (the score being only one factor) they do not qualify. Once I have applicants in the 650+ range they are one step closer to being eligible, based on my screening standards, and I then dig into the why of their score. If in this case there is no score why waste time when I can simply move on to the next applicant. Plenty of good applicants in the sea. If, on the other hand, you are a desperate landlord you may have different standards.
You can not have a vague screening practice/standard and expect it to stand up in court.
In your case you will be taking higher risks simply based on you having C and me B class properties. I can afford to be more selective and, yes, be a computer screening based only on cold facts.
I put little though into those I reject and prefer to concentrate/agonise over those I accept.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Alexander, If you bring judgement into credit decisions you are practicing an art, if you just check off boxes for compliance than you are a clerk, not an underwriter. Credit scoring assessment is based on statistical modeling, that is science.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Lots of good points Thomas, and no doubt being more flexible on credit opens the door to more potential litigation. The more properties one owns or manages the bigger target you become as well.
- Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes8y
With a credit report you are looking for payment patterns not high scores. People are creatures of habit, hence patterns. Anyone over a 620 score can get a loan and would not be renting. Look at what the bills are that are outstanding or in collection etc. I use a recommended / suggested 600 score. This keeps people from wasting my time.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Jim, scores are based mostly on payment patterns, usually people with good payment patterns score 700ish unless they max out their credit lines.
- 8yPenny ClarkPro MemberSacramento, CA · Member since 2014 · 513 posts · 319 votes
@Account Closed, Credit is important but I would rather have no score with proof applicant meets other financial obligations (current on utilities, cell phone bill, etc.) then an applicant who has a 720 score but is maxed out on all their credit cards and installment loans and whose debt to income ratio is off the charts. If they lose their job or get reduced hours and have little or no savings, they will buy food, keep the heat on and car going before they pay your rent.
Credit score requirements should also be reflective of the type of rental you have. For example, an A-Class property should demand a higher score than a D-Class. Owners need to learn to look past the score and focus on what is inside the credit report - late pays, active collections, judgments, repos - anything of that nature spells D-E-A-D-B-E-A-T. While these can sink a score so can foreclosures, short sales, medical debt and a three year old bankruptcy, which in my opinion, don't represent the same risk.
Credit score is also only one of three critical components for verifying an applicant's tenancy. Income and rental history (current and previous) are just as important.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Penny, canceled rent checks for the past 12 months would be a good compensating factor. Prior landlords are more of mixed quality data bag. I like the idea of adding points on to their fico for longer job time.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes8y
Originally posted by @Account Closed:
Jim, scores are based mostly on payment patterns, usually people with good payment patterns score 700ish unless they max out their credit lines.
Um, that's a rather inaccurate.
While payment history is 35% of a FICo score calculation, 35% is just over a third. So, scores are based "mostly" on other factors combined. Utilization, credit mix, age of file, etc. all figure into the scenario.
Utilization becomes an issue when it reaches 40% or so of the total or on any individual revolving account.
I have a whole PowerPoint I use to explain credit basics to rooms of consumers.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
David not sure where your getting your information from. I've looked over a lot of credit reports in my life time, and don't recall ever seeing one with over a 700 fico and a poor payment pattern. Maybe a late pay here or there, or a medical collection, never absolutely never. a poor payment pattern.
- Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes8y
@Account Closed
People with good credit understand the value of buying vs renting. People rent for many reasons, one is poor credit. People need to understand how to use the fico score and more importantly (to me) what is "On" the credit report. This also goes back to risk factor and what a person is comfortable. If you screen well then the skeletons will come out of the closet. Someone who pays all cash could have no fico score and great payment history but no way to track it. If they are 20 years old then not enough time to establish a high fico score.
I think I am going to agree with @David Dachtera on this one. I am no credit expert but my quick google search gave me this result.
https://blog.myfico.com/5-factors-determine-fico-score/
35% Payment History
30% Amounts Owed
10% New Credit
15% Length of Credit History
10% Credit Max
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes8y
Originally posted by @Account Closed:
David not sure where your getting your information from. I've looked over a lot of credit reports in my life time, and don't recall ever seeing one with over a 700 fico and a poor payment pattern. Maybe a late pay here or there, or a medical collection, never absolutely never. a poor payment pattern.
Don't think I said you would see that. My point was that other factors together outweigh payment history alone in both FICo and Vantage as well as others.
... and you won't see a payment "pattern" until you look at the report. Often times, such as in the case of people whose income is not steady (real estate agents, other commissioned sales people, freelancers, etc.), there is no pattern. When the money comes in they do what they can to catch up on payments.
From my "Credit Literacy" PowerPoint ...
FICo – 5 elements:
•Payment History – 35%
•Utilization Ratio – 30%
•Age of File – 15%
•Age of oldest account
•Average Age of Open Accounts
•Mix of Credit – 10%
•Inquiries – 10%
Vantage differs a bit ...
Vantage – 6 elements:
•Payment History – 32%
•Utilization Ratio – 23%
•Balances – 15%
•Depth of Credit – 13%
•Recent Credit / Inquiries – 10%
•Available Credit – 7%
(Percentages rounded for clarity.) My credit mentor says he considers Vantage to actually be a better predictor of possible defaults since utilization, actual credit used and total available credit are considered separately. FICo only considers utilization.
For what it's worth ...
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