How to Read a Credit Report: Tenant Screening in Detail

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Credit reports are the second most important document a property manager can learn to handle (after the lease agreement itself), and knowing how to read a credit report is crucial. A credit report is the only document that can answer the most important question of the tenant screening process: “Will this person pay their rent consistently and on time?”

The three most relevant aspects of a credit report are:

  • The frequency of late payments made to all creditors,
  • The number, type and amount owed of collections/charge-offs, and
  • The ratio of outstanding debt (monthly payments) to monthly income, and

Yes, we didn’t include the credit score on purpose—for good reason. But we’ll get there in a second. Also, this info is only available on actual credit reports, not the summary reports some landlords subscribe to. Let’s talk about how to read a credit report ‘Details’ section and interpret what you see there.

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Frequency of Late Payments & Patterns

Detailed Credit Reports show you, for each account reported, the payment history of that bill—was it paid on time or late each month for at least the past year. Most also tell you how late the payment was—30, 60, or 90 days late. Ideally, you’ll skim through these sections seeing a list of all on-time payments, but that almost never happens in real life.

What you’re looking for are patterns. For example, if you see something like this, where several accounts had late payments all at the same time:

  • Days Late: 0, 0, 0, 0, 0, 0, 0, 30, 60, 90, 0, 0
  • Days Late: 0, 0, 0, 0, 0, 0, 0, 30, 60, 90, 0, 0
  • Days Late: 0, 0, 0, 0, 0, 0, 0, 30, 60, 90, 0, 0

it probably means the applicant had a single financial catastrophe and recovered—not really anything to hold against them if it was an acceptable amount of time in the past and they’ve truly recovered.

But if you see various late payments on multiple accounts:

  • Days Late: 0, 30, 60, 0, 30, 60, 0, 30, 60, 0, 30, 60
  • Days Late: 0, 0, 0, 0, 30, 60, 90, 0, 0, 0, 0, 30

it probably means the applicant is having constant financial difficulties or doesn’t take their debts seriously, so probably isn’t a great candidate.

What you’re really trying to discern are patterns that there are logical explanations for. A random late payment here and there is most likely not that big of an issue, but multiple, random late payments or patterns with no logical explanations, demand more information from the applicant and usually lead to a rejected application.

Related: 4 Old School Tenant Screening Tips That Still Hold True For Modern Landlords

Outstanding & Historical Collections & Charge-Offs

You can tell a lot about an applicant by what accounts they’ve had go to collection or charge-off and those they’ve since paid or ignored. For those not familiar with the term charge-off, it’s usually a collection account the creditor has chosen not to pursue.

Medical collections can usually be ignored, using the logic that an applicant has to seek medical treatment even when they know they can’t afford it.

Look for patterns in these types of accounts, do they get credit cards, charge them up and then stop paying them? Do they have multiple cell phone accounts they never paid? What about utility collection accounts? How will they put utilities in their name?

Monthly Payments Owed: Rent-Load vs. Debt-Load

Lastly you’ll want to look at the amount of payments on credit accounts an applicant has. This will include every ‘above-the-table’ debt, including car payments, credit card minimums, student loans, any damages owed from judgments against them, and so on.

Don’t make the mistake of focusing only on applicants having income equal to three times your rent. What happens if they meet that requirement, but have a ton of credit card and student loan monthly payments?

What you should do is subtract all their monthly payments from their income and then see if the remainder is three times your rent. If it isn’t, how will they afford to pay you?

Related: The Four Pillars Of Tenant Screening

Why We Ignored Credit Scores

Credit scores are a decent indicator of an applicant’s basic credit worthiness. Many successful landlords use credit scores exclusively to approve or reject applicants. We believe though, that an applicant is more than just a credit score. We’ve approved many applicants with questionable credit scores that worked out fine. We’ve also rejected many applicants with credit scores that looked acceptable, but upon deeper analysis their credit reports show they’d be high risk.

The more you learn how to read a credit report alongside the data on a rental application and confirm all the different pieces jive with each other, the better your screening process will become and the less tenant headaches you’ll have.

What are some key pieces of information you look for on a credit report?

About Author

Drew Sygit

Drew is the manager of Royal Rose Property Management, a fairly high-tech solution for Detroit Metro area property owners & investors.

16 Comments

  1. Douglas Larson

    Very good article. I have accepted several tenants over the years that have had credit scores in the 500s but they have a distinct reason like a divorce 3 years ago or hospital bills that went to collections. As mentioned in the article, the most important indicators of getting paid are the recurring monthly payments that matter most like cars, credit cards and certainly their previous and current landlords.

    • Drew Sygit

      @DOUGLAS: we’re glad you get our point:) We’ve had many questionable applicants tell us we ask for too much information on explanations — to us that’s a sign they don’t take accountability for their issues and won’t be a good tenant.

        • Have YOU ever had difficulties when renting or purchasing a home? And I don’t just mean finding one in your preferred color. Excuse MY contrite tone, however it was meant to mirror yours. Is a one-demensional Credit Report truly an accurate representation of the character of that individual and a reliable indicator of their future behaviors? Does it overall bear more weight than current, real life statements from others who actually KNOW the individual? People who know how hard that individual has struggled and how desperately they need an opportunity in order to succeed? I understand the importance of making sound business decisions and limiting risks, but please don’t forget YOUR humanity in the process. Don’t judge a book by it’s cover or its Credit Report. Your position is an honorable one; the gateway to a place to call home.

      • Drew Sygit

        @TONI: Thanks for a different viewpoint! It does somewhat mirror this article’s point about not just using a credit score.

        It seems though, you are suggesting we should entirely ignore credit reports and solely base our decisions on personal endorsements.

        Assuming this is correct, there are several challenges with what you suggest:
        1) Many applicants with significant credit issues give vague contact information for the personal references they give us.
        2) Contacting the personal references is hit-or-miss, we seem to only be able to get ahold of roughly 50% of them.
        3) Getting any really useful information from the 50% we do get in contact with is VERY difficult. Given that the personal references know the applicant’s history, and statistically are likely to have the same background & similar issues as the applicant, why do you think they aren’t very open with our questions?
        4) Any information we do get from the applicant’s personal references is statistically questionable as they have an incentive to misrepresent the facts. Why would they tell us anything negative?

        There’s one more major issue with what you propose — applicants misrepresenting their information on a rental application. Besides those that out and out lie, there are many more that deliberately leave facts off their applications hoping we won’t notice or they don’t think it’s a big deal — we get a lot of applications from low-demographic applicants that have addresses on their drivers licenses, paystubs, W-2’s, etc that they don’t put down on their applications. Then we get nothing but attitude from many of them when we ask for detailed explanations!

        Now consider that these same applicants expect an approval answer from a landlord ASAP! How can all this be done efficiently within 48-72 hours?

        In our opinion what you propose will statistically only work less than 10% of the time. Meaning, that even if we did exactly as you propose, the combination of effort to contact references, the time it will take, the likelihood of getting the truth from them and that applicant paying their rent on time and taking care of the home, will only be a success for a landlord less than 10% of the time.

        I hope you can now see this from a landlord’s point of view. We have a limited amount of resources and time to make the best decisions STATISTICALLY possible. It’s not realistically possible to identify and help the occasional applicant who’s turned their life around, but not for a long enough time to be reflected on a credit report.

  2. Drew Sygit

    One more thought (hit me in the shower this morning) – if you’re getting enough applicants for a property that all have acceptable credit, you can probably afford to use just a credit score for credit evaluation to expedite your screening process. If you set your credit score threshold high enough AND correctly analyze an applicant’s debt-to-income ratio (3 x rent in income AFTER debts subtracted from income), then you should be okay. Statistically, there is still a chance a bad applicant gets through your screening, but the that chance probably isn’t much worse than if you looked at the full detailed credit report.

    • Deanna Opgenort

      MySmartMove usually works pretty well. It’s easy, not too expensive, & finds most things. Easiest way is to have tenant pay for it, but interview them first to make sure they fit your criteria (ie if you have decided that no way, no how are going to have anyone with a criminal record conviction within the past 3 years let them know up front. If the house is within 1000 feet of a school they can’t legally reside there if they are a registered sex offender).

      For my house I’ve found that the best way to deal with this on the initial phone interview is to give the potential tenant my “laundry list” all at once — house is within 1000 ft of school, ABSOLUTELY no drugs, no pit bulls, etc, then see if they are still interested (your laundry list may be very different)

      Because I am dealing with lower-income rural rental I make sure the paid background check is the very last thing I do. Currently I allow the applicants to deduct the cost of the first two applications from the first month’s rent, but tell them that if they have withheld info and I reject them they are out the $. I do tell them that the background check I do is very, very thorough, and while I don’t generally hold old incidents against someone I WILL reject an applicant who lies. I ask several times if there is ANYTHING that MIGHT POSSIBLY show up that I should be aware off — even something from 10-20 years ago may show up in court records.

      • Drew Sygit

        @DEANNA: thanks for getting to this before we could!

        @KENNETH: accessing an actual credit report is challenging due to privacy laws. MySmartMove is one way. You register as a landlord and send a “request authorization” to the applicant’s email. As long as they follow the instructions you get the report.

        If you want more traditional access, especially for low-demographic applicants that probably won’t respond or don’t have email, then we suggest signing up with Mr Landlord (https://www.aoausa.com/mrlandlord.html). WARNING: you will have to pay for a onsite inspection of your secure office where access to the computer used to pull credit reports is controlled. Not a problem if you have a home office with a locked door and a password protected computer.

        There are several other options, but one of these two will cover most DIY landlords. If anyone has other options, please share!

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