Don’t Roll the Dice by just Trusting your Gut when Screening Tenants. You’ll be sorry.
After having been in the property management business a long time, certain patterns emerge continually and nowhere is this more true than when screening tenants for a new lease.
Screening tenants is much like a job interview. You try to get the most accurate read on how the individuals will fulfill their tenant role BEFORE you commit to letting them move in. While not the same as a sit down interview, a landlord or property manager has to collect information and then make a judgment call.
I personally have been screening tenants for over 15 years. In that time I developed some guidelines and rules and I stick by them because they work extremely well. In this article I am specifically discussing the guideline that FICO Scores provide an accurate representation of a person’s level of responsibility. The rule which follows is that I don’t rent to anyone whose score is below 650.
Quick caveat, I will make exceptions in extreme cases (which is rare). The reality is that credit scores are a culmination of years of decisions regarding a person’s finances. It tracks how much they’ve borrowed and if they pay/paid it back according to the creditors’ requirements. It’s super simple.
Back in olden times, not paying debts landed you in prison
Of course, paying back money can’t be enforced the way it was in olden days where not paying bills could land you in debtor’s prison. Without such a harsh consequence, people have become very relaxed when it comes to following creditor’s rules. So while anyone can shine in an interview and present well, years of responsible or irresponsible behavior cannot be hidden. And the FICO algorithm is one that distills all that behavior down to one data point.
Experience has shown me it’s incredibly accurate. It really is. And why it matters is that you the landlord are the creditor and they, the tenants are the borrowers. You ‘lend’ them a place to live with then understanding that they pay you each month. If they don’t pay you, wouldn’t it be convenient that on that day you could demand they vacate and the very next day you escort new tenants into the home?
Oh, that would be glorious. Unfortunately it’s a lot more expensive than that. First off, usually the ones who don’t pay on time DO pay but they do so when and how it works for them. That could easily screw you up with your bills.
That’s the whole essence of what the credit score reveals when screening tenants. Do these people follow through on what they agreed to or do they impose their own system?
Evicting tenants is a huge hassle. If you’re sensitive, it gets under your skin. I’ve had conflicts but luckily in all these years I’ve never had an eviction. Luckily in South Carolina it goes a bit faster than some really liberal states but still the laws tend to favor the tenant as it is loathe to kick people to the curb unless absolutely warranted. And even if you could expedite an eviction, you’re likely to lose a couple of months rent and you won’t be able to show the house until the people have left which means at least one more month of nothing. That’s a lot of lost revenue.
People will low credit scores are not always bad people. I would never claim so. But they might be bad tenants meaning in the business relationship where you own a place and have your bills to cover, you expect the income to be forthcoming according to the agreement so you can be responsible to your obligations.
…the low scoring tenants seem to have prioritized their own needs over the needs of the land owner.
I mean imagine this; each month you contact the tenant and let them know that for the first week of the month, you’ll be renting the place out to a someone else. You can explain it’s a great opportunity, one they can’t pass up. No sweat to them, you’ll just deduct the 25% off the rent.
Right. Imagine the outrage. “You can’t do that! I pay for this place and I have legal rights!” says the angry renter. True, they do have rights and so does the landlord. But somehow the refusal of the tenant to honor the agreement happens frequently and the landlord has to figure out how to manage their bills even if the rent isn’t fully paid as agreed. On the flip side, if a landlord tried to displace a tenant for even one day, they be pounding on your door with a court order demanding a remedy.
This is another weird but true thing about low credit scoring tenants. When they are violating the lease and not acting responsibly, it’s not a big deal, not to them and (they feel) nor should it be to the landlord. Honestly, I’ve never understood the mentality of someone who takes what is offered but refuses to give what was agreed.
Now if things escalate, the irresponsible behavior often morphs into an entitled outrage. I suppose when the light hits their flaws, the easiest thing to do is be indignant that you have the nerve to expose them. I personally can’t imagine having such an attitude but I don’t kid myself. A LOT of people do. And maybe it makes sense given how the world has treated them. I am empathetic but from a distance, thank you very much.
However when it comes to allowing a person with the tendency to be lackadaisical about the lease terms to live in a property I own, the answer is no. And that extends beyond just rent. It encompasses whether they will honor the pet policy. Will they treat the house with respect? Will they grant you access to do maintenance inspections? How much aggravation will they cause you? Personally, I know how much I can absorb. It’s more than most but I know my limit.
So if while you are screening tenants you come across a low credit score, you can be certain that at some point, they will ‘adjust’ the lease terms to work better for them, not for you. The credit score shows you how much their word means because the more you do as you agreed to, the higher the number goes. Also, to be fair, the more you understand the FICO system and act accordingly, the higher your number goes as well.
To this point, I will say that if you’re at 720 and want to hit 800, you’ll probably have to dig deep into your personal credit report and see where you’re triggering the system to keep your number down. But if you’re past 700 you should never as a tenant have difficulty getting a landlord approval unless you have other issues that concern them
Last point… sure, not everyone at 649 and under is going to be a problem. But I highly recommend you pick a number and stick with it. If you’re cool with some of these challenges that irresponsible or less responsible people will bring you, drop your number to 625. If you just want a hassle free relationship where you can expect absolute compliance, bump your number to 700.
The higher you go, the less people are available. In our case as property managers in Charleston, we can accept the behaviors and irritations that accompany them if we keep our number at 650. Lower and there’s too much drama. Higher and it takes too long to find good people and the owners get antsy about missing rent payments. So you see it’s a balance, a give and take. Best wishes and be strong in your decision!