I just put my first unit on the market and I'm getting a whole range of interested parties. Many of the folks who seem like decent potential tenants have lower credit scores. There are many folks in the 600-650 range, which seems very low to me, but perhaps I'm being too strict on this? There isn't a lot I feel I can use as criteria, so this serves as a sorting mechanism, but I don't want to limit my pool too much. Is there a cutoff point I can use as an indicator of someone who does/doesn't pay things off? Is there a magic number that sorts out the unreliable tenants and keeps the ones who will likely stay for a while and pay on time every month?!
For context, this is a 2 bedroom 1 bath in Salem, MA about 30 minutes north of Boston. It's a solid town that is rapidly improving, but the tenant pool is not like being in the city or on the immediate outskirts.
I go as low as 525 for my Memphis rentals, per the property management companies criteria. I think the lowest is 558 or so currently. The biggest thing is no evictions or judgements or criminal record and verifiable income of 3x rent.
If they have all that, then the low credit in of itself isn’t a big deal, at least to me. I can not pay a bill for a couple of months and my credit goes from 750 to 575. Very easy to have poor credit.
@Caleb Heimsoth , thanks for that. Very helpful!
Hey Matt, I view credit scores like SAT scores as they relate to the college admission process. It's good to have some sort of threshold, but you always need to look at the whole picture, otherwise you might lose out on better-qualified candidates. Like @Caleb Heimsoth mentioned, I put the most stock in eviction history, criminal record, and ability to make payments (3x rule).
I will rent to someone who has never been evicted, has positive references from past landlords, and makes 3x rent, but has a low credit score of 525 (maybe because they missed a few medical bills or whatnot) any day over a person with a higher credit score (say 650) but has had an eviction filed against them, or has negative references.
Instead of focusing on score, look for a credit report that demonstrates a history of responsible financial decisions. This is more valuable than a score.
@Matt Tatkow I follow pretty much what @Caleb Heimsoth mentioned. I usually ask for a larger deposit when there are issues such as lower credit score. A higher deposit than a months rent tends to encourage the tenant to pay that last months rent and leave the house reasonably clean so that they get their deposit back.
I consider the totality of the application but I do want to see a good credit score. 700+ preferred, I might consider someone 650-700 range if the rest of their application is excellent, I don’t think I’d accept below 650.
Thank you all for the thoughts! This at least gives me a few frame works to use in thinking about how to navigate this.
We do not consider someone's credit score at all when qualifying tenants! We look at income qualification, no evictions ever on there record, no bankruptcies within the last 7 years, no violent felony convictions and we do a 2 year past rental history check. We will also look at their credit report and we are looking for any wage garnishments, judgments or multiple accounts in default. People can actually be very good tenants but have poor credit scores for a multitude of different reasons, its actually the least important metric to look at in my opinion.
No magic number!!
Very seldom in our market that we find folks that have good credit scores of 700 and above. We do not put too much value in scores, we like to view total debt as a percentage, income 3 times monthly rent (verify all income) and no evictions.
We just ran into a situation while talking to the applicant she proceeded to tell us that they had no debt and paid cash for all purchases, we said good deal and if this checks out the property will be yours. Ran all checks and credit came back with $50k worht of BAD debt into collections (they stopped paying and just assumed they were DEBT FREE).
Bottom line: talk with the applicant and then VERIFY all answers. Some may seem like they got it together and it turns out bad, others will give you goose bumps to rent to them and they turn out like some of the best tenants.... I have a set of the latter been with me 8 years..
Wound up getting some very qualified tenants with great credit scores and five applications. Must have priced it too low, but at least I have a tenant in there that seems very reliable and all previous landlords said they were wonderful.
Thank you all for your thoughts!
@Matt Tatkow if you don't mind me asking, how many beds/baths? How modern did you make the unit? And what did you end up renting it for?
I just bought in Salem and am starting to get my feet wet with the same things.
If your property is c/d class then credit scores are not of much use. Those type of tenants rarely place any importance on financial obligations. If you have a B class property statistically a score of 650 should be a bare minimum. Any B class applicant with a score below 650 is likely financially irresponsible in having not saved or made plans to manage major financial hits.
My minimum requirement, as one part of my screening standards, is 650. The vast majority of the applicants I accept are well above that score.
Credit score is a measurement of financial responsibility and is a very important metric for assessing any applicant. Keep in mind when tenants run into financial management problems their landlord will be the first impacted and the last to be paid.
Instead of focusing on the score.. look at the report! Have they ever been late on a bill, if so--when? What's their total payments due each month, and how does that compare to their income? I think so many people get caught up with the #, and don't look at the actual score, and what it means to a landlord.... I do C/D properties, so when I get it, it's about the report-- not the number.... late payments are the biggest red flags... because you have to understand, if someone has 1K outstanding, but they have a $10K line, that's not a big deal.. but if someone has 1K outstanding, and 1K line, that's horrible.. so focus on the report and what it means as far as lifestyle.
I suggest focusing on income/job stability, that's what is going to pay the rent! Make sure the home is a good match for the person, their job, commute, lifestyle, etc.
@Joe Ruggiero , It's not modern, 2 bed 1 bath. Happy to give you a walk-through and fill you in on what I learned about the market. I'll dm you.