Credit Score
Credit score cutoff is the most common and probably least effective measure of a prospective tenant. Credit scores are a compilation of factors used by credit bureaus to determine creditworthiness; however, not all of these criteria are applicable to assessing a prospective tenant.
In truth many times a credit score requirements are used as a simple (and lazy) way to quickly disqualify a large pool of prospective renters, who would be more difficult to qualify, without any work. Our process at Boomtown could not be more juxtaposed to this policy. At Boomtown we work to attract the largest possible pool prospective tenants, and through automation we aggregate and process all inquiries and narrow the field using our proprietary process and standards.
At Boomtown we do not disqualify based on credit score alone. We believe in the sufficiency of the credit report and our qualification standards using late payments, revolving debt utilization and total debt.
Late Payments
When assessing a prospective tenant with a low credit score examining the credit report for late payments is a great way to determine if the candidate would be a good risk. Many times low credit scores are a result of a lack of open credit lines or zero balances on revolving lines – this is not a bad thing from a landlord’s perspective when qualifying a new tenant. Other times a low credit score could result from a single low balance in collections (e.g., $35 cable bill or $15 delinquent cell phone bill). Again, from a landlord’s perspective these do not warrant the disqualification of an otherwise qualified future tenant.
We believe the past is the best predictor of the future and so we place an emphasis on timely payments when qualifying future tenants.
Revolving Debt Utilization
Revolving debt utilization and high revolving debt balances are the most common reason why prospective tenants with high credit scores are disqualified. High revolving debt balances are a key marker for bankruptcy risk and collecting back rent or prosecuting an eviction with a tenant in bankruptcy can be time consuming and expensive. Evicting a tenant in bankruptcy involves petitioning the bankruptcy court to lift the automatic eviction stay which delays any eviction in progress and adds additional attorney fees.
Likewise, high utilization on revolving lines of credit (credit cards) is a key indicator of a prospective tenant living above their means by financing their lifestyle through high interest unsecured debt. Unfortunately, these types of situations are usually the beginning of a downward spiral of higher payments, higher interest charges, and eventually bankruptcy.
Total Debt Picture
The final step in qualifying a prospective tenant is to review the total debt picture and credit history. Which way is the credit report trending – is it getting better or worse? Are the instances of late payments increasing or decreasing? Was a life event responsible for derogatory events on a credit report? Divorce is very common and a typical reason for anomalies on a credit report. Is total debt increasing or decreasing? Student loan debt isn’t necessarily bad and is often associated with promotions or new employment.
At Boomtown we analyze the details of each credit report and examine the total debt picture before making a decision and presenting a qualified application to the property owner.