What Credit Score Should You Look For in a Tenant?

When you have a vacancy at your property, you’ll be tempted to fill it as soon as possible. But in most cases, it’s better to carefully screen your tenants, so you can be sure you fill the property with a candidate who will pay you consistently, on time, and preferably for as long a period as possible.

One of the simplest screening tools accessible to landlords is checking a tenant’s credit score. But what’s the best credit score to look for, and why is it so important in the first place?

Why a Credit Score?

A credit score, kept by the three main credit bureaus, is a numerical score typically between 350 and 850 (though this may vary based on the source) that indicates a person’s personal credit history. Generally, the higher this number is, the better.

A tenant’s credit score will oftentimes reflect their past fiscal responsibility. For example, frequent missed payments or delinquencies will have a negative impact on their score, while a history of good payment will increase it. A credit score can also change based on the amount of debt a person has, and how much credit they have available to them. In short, it can give you a rough indication of whether this person is likely to pay you consistently and on time, and how reliable they are in general.

How to Check a Credit Score

If you’re going to check a tenant’s credit score, you’ll need to have access to their full legal name, their previous addresses, their social security number, their date of birth, and preferably, their current employer. You can ask for this information on your tenant applications. From there, you can use one of the three main credit bureaus (Experian, Equifax, and TransUnion) to run a credit check.

Assuming you have that, how can you tell what’s a “good” score for tenants?

The Problem With the Ideal

Obviously, the higher the credit score is, the more fiscally responsible and the less risky a prospective tenant will be. A credit score of 720 to 850 is considered “excellent,” and typically has little to no trouble securing loans, making payments, and taking other financial actions. Similarly, a score of 690 to 720 is considered “good,” and is only a step behind “excellent.”

If you can get a tenant with a high credit score, you should probably nab them. The problem is, by the time most people get this good a credit score, they’re financially established enough to buy a place of their own—especially if it’s much cheaper to buy than it is to rent in your area. That means if you want a chance at filling your vacancies with reasonable speed, you’ll need to lower your standards a bit.

Your Target Range

The lower end of “good” credit scores and the “fair” credit score range (650 to 690) are good targets for landlords trying to fill vacancies. This range isn’t perfect; they’ve likely had some trouble with payments in the past, or might have significant standing debt, but they aren’t so far gone that they can be considered unreliable.

They might also have trouble pulling together the down payment money or paperwork necessary to buy a home, which makes them prime candidates as tenants.

The Benefits of Lower Credit Scores

Dipping into lower credit scores, in the “poor” range (below 650) is somewhat risky, but there are some potential benefits here. If you open your house to someone with a lower credit score, you may be able to charge more rent; people with problematic pasts may have trouble getting approved elsewhere. You might also be able to take advantage of a Section 8 housing program.

No Credit?

So what if a person has no credit? These people don’t have any significant financial history (good or bad) and are the tenant equivalent of a wild card. You shouldn’t base your decision entirely on a person’s lack of credit, though objectively, they represent a higher risk than someone with an excellent credit score. You’ll have to rely on other variables and indicators of financial responsibility to flesh out your decision and make an objective call.

Other Variables to Consider

No matter what type of credit score range you’re considering, you should look at these other variables in a person’s profile before you make a final decision:

• Someone with a low credit score may still be able to make routine payments, in full and on time, if they have a decent, consistent employer. Conversely, even a person with a good credit score may be a risk if they don’t have a consistent job or line of income.
• You may also inquire about the prospective tenant’s history with other renting arrangements. If you can, call their previous landlord and ask what their previous payment history and overall demeanor has been like. You might be surprised at the answer.
• Family status. It’s illegal to discriminate tenants based on their family status, but you might be able to gauge a tenant’s responsibility based on whether they’re living alone or with children.
• Make sure to have a one-on-one conversation with any tenant you’re considering accepting. You’ll be able to get a feel for the tenant’s personality and attitude, which may be strong indicators of their responsibility and accountability. You’ll also get the chance to ask them specific questions about their past—which is a good idea if there are questionable records on their credit report.

Tenant screening is going to be a pain, no matter what type of tenant you’re looking for or what kind of property you have to offer. Learning more about credit scores can make things easier, but it won’t make the problem a simple one. If you’re interested in lightening the load on yourself, consider talking to a property management specialist, like us here at Green Residential. Reach out to us today, and we’ll help you understand how Green Residential can make your tenant screening—and your life as a landlord—easier.