Looking for some insight from the BP community. What specific credit score, if any, do you require when screening tenants? And are you no longer using a specific credit score in light of concerns with Fair Housing, Fair Credit and other laws? Your feedback is appreciated.
I don't focus on credit score, I'm more concerned with Income and open lines of credit, and on time payments.
A lot of people across the income spectrum have BK, Divorces,Medical Setbacks etc that throw off Credit Scores
I still ask for/run complete Credit Reports
I look for above 600 but take the best applicant. As @Aaron DiCaprio said there are sometime valid reasons why someones credit score is low and I will take the entire background check into consideration when reviewing applications.
I advertise, "620 preferred but not required." The credit system is garbage and works against you. It's not overly important to me.
I think credit scores are ********. For example: we own six properties outright and have five mortgages. Credit cards paid every month. No car loans. 100% perfect payment records over our entire 40 year adult lives. W-2 income all in is over $250K not including perks like car, rent, gasoline as we are on overseas assignment. But since we bought 3 properties last year, that's "too many recent credit accounts open" and my husband's score is only 718 which throws our interest rates up a full point on new loans. I look at the full report, and low scores for my tenant base usually reflect their age more than anything else. If they haven't had any issues for the last two years and they can prove their income, I'm cool. I did turn down a guy last week whose score was 692 despite apparently having two cars repo'd, three accounts closed with the notation "customer disagrees" and he also had a conviction for driving without insurance. How the HELL is his score so close to my husband's? It makes no sense.
Updated 3 months ago
This post made me go check my OWN full credit report. Turns out someone opened two credit cards in his name in the last couple months, maxed them out---they weren't hurting him for delinquency-yet- but hurting him for maxing out the credit line. Once it is resolved that it is fraud, it should bounce back up by 50 points at least. Lesson learned. Don't be lax about checking that score!
Credit scores aren't really that great of an indicator of creditworthiness. Honestly, getting a history of their accounts/payments/etc gives you a much better view than just a score. We ask for 600, but a score below that isn't an automatic denial, we may just ask for some more documentation.
We run applications on a 4-point system:
- Credit over 600
- Criminal/Eviction Background Clear
- Homeownership/Positive Landlord Reference
- 2+ Years of Employment History
If they meet all 4, then great! They're approved on a 1-month deposit.
If they meet only 3 of them (let's say their score is below 600), then we'd ask for additional income documentation (like their previous year's tax paperwork to show their full yearly income). There's also a $200 Credit Approval Fee that covers the further research into their credit history and additional screening with added documentation.
If they meet only 2 of them (credit below 600 and a negative criminal background item, like writing a bad check) then we'd charge a 2-month deposit.
If they only meet 1, then they're denied.
Being able to run the applications in this manner really helps ensure that each application review is as far detached from personal feelings as possible. Makes it a very straightforward and fair process for anyone and everyone.
About 600, and 3 times income to rent. These are B class properties renting for $1,400 a month.
We look at credit scores over 600 and require responsible credit history. Responsible means no collections, no recent late payment, no recent excessive debt. I have learned credit report is an almost perfect indicator of how good a tenant will be. It shows responsibility. People who pay their bills also happen to take care of their property.
Score by itself is only part of the story, but usually bad applicants will have a very low score.
i tell applicants I don't look at score. I look at "payment behavior", which means I look at your whole report and see how you pay off your bills.
@Aaron DiCaprio from 550- 575 min. If low we ask for 1st, last and SD... When dealing in lower income areas , flexibility must apply. Also we like to look at it all. If simply no credit well, we get them in.
Appreciate all of the feedback! Very helpful.
@Aaron DiCaprio I dont look at a specific number rather I look at the whole picture, income, evictions, type of job ect
My tenants with scores below 600 seem to be lifers in my properties. They won’t ever be able to afford a house and are living pay check to pay check. These are my best tenants that seem to never want to leave. So I’m happy with these types of people. My tenants with high credit scores and higher paying jobs don’t stay as long. They end up staying only a year or two until they can afford a house to buy. And I hate turning over a property to rent out again.
I would look at the whole picture. You can set a minimum if you want to, but also consider their income, payment, account history, on top of background checks for criminal and eviction records.
I don’t cut off based on score. Below 600 though I require a 2x security deposit. As long as income level is 3x that is.
@John Morgan excellent observation! Behavioral psychology in action.
@Austin Thompson great indicator! Thanks!
@Nancy P. That’s an interesting one. I would be discourage and uninterested in credit scores if I was in your shoes seeing that tenants background too...thanks for that story...puts credit score in check for me
@Aaron DiCaprio 620 and higher. 620 is considered the lowest average/ok/fair credit score.
@Aaron DiCaprio class B neighborhood btw
In cashflow markets you cant expect anything better than fair/good. If their credit score were very good/excellent then the prospective tenant would be a homeowner especially on a property that costs about the same as an above average vehicle.
@Aaron DiCaprio in my opinion I would use at least they 600 FICO score or above I would run a background check
Absolutely look at the whole credit report - I've seen decent scores with some bad debt attached to them. The landlord reference is also super important. Make sure you can verify that the person to whom you are sending the form is a legitimate landlord. People put their friends and family down all the time. Income verification can be tricky if the person works in the food service industry. If the pay stubs don't pan out, I ask for a bank statement going back 3 months.
I disagree. Cash flow can happen at many levels of the market. My duplexes are $260k and above, with rents of $1,400 up and I cash flow. Cash flow in the area could be a $50k house as well.
What I’m finding is, my tenants make really good money but like a majority in this country they also spend up to their paychecks. In other words, they don’t save any money for a down payment that would get them a house with the same mortgage as their rent payment.
@Anthony Wick I should have been clearer. I mean the midwest markets where rents are $400-$600 on a 65K home..If a tenant can rent for $400-$600 a month but cant buy a $65K property they usually have bad credit and low income. Cashflow on $400-$600 rents IMO is not cashflow especially on a 100 year old home with non-quality tenants and major expenses with evictions being a major one.
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