How to Use FICO Scores as a Landlord
As a landlord your choice of tenants can be the beginning of a mutually satisfying relationship or the start of headaches, hassles and problems. In a perfect world your prospective tenants would have perfect credit history, long steady employment and great past rental history.
The reality though, is that many applicants can not meet every requirement. A FICO score is a good starting point for your tenant screening process.
5 Ways to Use FICO Scores as a Landlord
1. Keep in mind that a FICO score does not tell the whole story.
Ideally your applicant will have a minimum score in the upper 500 to 600 range but even if they fall below these levels, they may still be good candidates.
2. Evaluate what is affecting their score as there are many factors that can influence this.
Be very cautious if you see judgments for delinquent rent as this is an immediate red flag.
3. Ask your perspective tenant about anything that gives you cause for concern with regards to their FICO score and credit history.
For instance, a foreclosure will cause a significant drop of a FICO score but before closing the door on the applicant find out the circumstances. It may not be as bad as it initially looks.
4. Weigh the score against all other known factors such as employment history, rental history and the debt-to-income ratio.
Many people default on credit card and loan payments but still keep up on rent so this is where good rental history should definitely be considered and weigh heavily in their favor.
5. Expect to see problems when you pull a credit report and try to be as fair as possible when evaluating their application.
Few consumers have perfect credit and FICO scores, but they still make good tenants.
Never be afraid to ask your prospective tenants questions. Many landlords are embarrassed or uncomfortable asking strangers personal information especially about their financial life, but you must overcome this so you have all the necessary information to make an informed decision.
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