Rental Application - Making a Decision Based on Credit Report

[Nir]

Hi All,

As a rule of thumb, do you not accept any tenant with even one collection reported on his credit report?

Also, what do you tell the applicant/how do you explain your decision to him/her? Just say something like "Unfortunately, I can not accept your application due to issues shown on the credit report"? Any better way to inform the applicant?

THANKS,
Neil

 

[EdRenkema]

QUOTE (investmart @ Jan 12 2009, 03:43 PM) Hi All,
As a rule of thumb, do you not accept any tenant with even one collection reported on his credit report?

Also, what do you tell the applicant/how do you explain your decision to him/her? Just say something like "Unfortunately, I can not accept your application due to issues shown on the credit report"? Any better way to inform the applicant?

THANKS,
Neil
I`ve just accepted a tenant with bad credit, several discharges. That is why they are tenants not owners. I did get solid referrals from both husband and wife`s employers and a previous landlord who indicated he was never late and took initiative to fix things. That and the tenants proactiveness in getting the little things done-utilities, postdated cheques, certified first and last makes me feel pretty secure about my decision.
If you deny an applicant the correct statement is as follows:

We have decided to rent to someone else.

Say anything else and you may get yourself in trouble

 

[Nir]

Thanks Ed,

Although I thought mentioning "Unfortunately, I can not accept your application due to issues shown on the credit report" is legitimate and legal, I like your approach more: "We have decided to rent to someone else."

Lastly, what if it is a couple? do you expect both to meet your criterias (whatever your criterias are) or are you ok with just one person meeting them (even if the other applicant is not so good) and then put the first as responsible for rent payment in order to resolve the "issue"/reduce the "risk"?

Regards,
Neil

 

[emarsig]

Thanks Ed,

Hold on... not so fast. Our tenants are people who don`t have the money for a downpayment for buying a house. Not every individual with a bad credit report is a bad tenant. There are decent people who are in financial troubles, who cannot qualify for a mortgage... Our job as a landlord is to find these decent people and separate them from the fraudsters. I`d rather rent to someone who had a financial mishap and is going to recover, than a professional tenant who has no cash, no credit and therefore a short and meaningless credit report.

When evaluating the tenant ask yourself these questions:
- how long employed?
- total family income? more than 2.5 times your rent plus utilities?
- can it be verified? (get T4 slips or bank statements)
- check the credit report: What kind of debt is he delinquent? Consumer`s card, credit card, car loan?
- how much credit does he have outstanding? If it`s high compared to his income, he is likely to be paying badly to you too. If he has an R9 (delinquent payment) for one card, and otherwise is catching up, there may have been a problem.

If necessary I get back to the tenant and point out that his credit report is showing a problem and let him explain what the problem was. In any answer, I assure him that I will try to get him approved, but there are other applicants as well and he will need to provide other documentation ie. cancelled rent checks from previous apartment, cosigner for the lease, etc.

If it pans out, you`ll have a thankful tenant. If you decline him: "We have to decided to rent to someone else".

 

[rabka]

Great discussion topic...I was in the similar situation 3 months ago where I have checked the credit of the potential tenant and found some collections but I did took the reference check and all was good and she was a single mom with two kids so I thought to give her a chance and she seemed fine. After the third month her check went NSF and I did talked to her and she promised to resolve this in couple of days which never happened, then I found out that her cell phone is now no longer in service and after few days her home phone went no longer in service. So I agree with those who think that if someone has a habit of not paying and went that far that it shows on their credit there is a very high chances that they will not pay your rent after some time.

Now the real question is, if you are in a situation like this what are your options to vacate your home and find another tenant, how legal it is to give her the 10 day notice to vacate the place due to the non payment or according to the law I have to wait for certain amount of months before I can do that? Any comments will be really appreciated.

 

[OlegP]

Neil,

RABKA tells a very common story below. I saw this happen again and again. Contrary to what potential tenants would have you believe, more often than not it is their choices, as opposed to some kind of conspiracy or bad luck, that leads them into financial and credit trouble. Analysis I personally did at work showed that 66% fo people who went bankrupt in the past, ended up going 90+ days past due on their post-bankruptcy credit trades. So profile your applicants to understand how stable and reliable they are. Here are some criteria I would consider:

1) How long has the applicant`s credit file been in existence (long time is better than short time)
2) How long ago did the last delinquency occurr (beware of recent or current delinquencies). It should be at least more than 6 months ago for me to feel comfortable.
3) What is % satisfactory trades (i.e. Never Delinquent). I use a min of 50%.
4) How long have they been employed?
5) How long have they been at their previous address? What does their previous landlord say about their payment history?

BTW, R9 or I9 indicates more than delinquency - it means that the credit lender wrote this trade line off as uncollectable, and a collections agency is likely now working these people, so try to stir clear of people with this credit info unless they have a lot of offseting good factors.

Oleg

 

[Nir]

Wow. Ernst, Rabka and Oleg, Thank You, Great feedback!

I think the Transunion report i have does not distinguish between R9, I9 etc. just shows list of collections reported. one of the Creditors is "Oxford Provincial Offense"! out of curiosity, does anyone know what "Oxford Provincial Offense" means? it doesn`t sound good that`s for sure.

Regards,
Neil

 

[Nir]

Hello Ernst,

I just wanted to let you know I did use your advice in this case. I told the potential tenant there is a problem and gave him Transunion number. It felt it was more appropriate in this case because i kind of became a little close to them. more than i should have however and that is why in the future i will keep more distance at least in the initial stage before choosing a tenant and use Ed`s approach which is less "risky" in my opinion.

Thanks again,
Neil

 

[mlwilliamson]

Ed,

I am just dodging bullets out here. I have pass on a few people because of things like: 1) I don`t have credit because I use cash and 2) I have to be the one on the lease because my wife as bad credit.

In this case the husband was self employed and wife working. The problem here was the husband did`nt seem keen on providing prior year information to verify sustain business income.

Currently I have (4) 21 years that have sent in an application to rent my condo. Applicant makes less than the other 3 and only the co-applicant as been employed in present position for more than a year. Should the applicant not be the higher income earner? Also would you use the total income for 4 adults to rent a 3 bedroom condo? As anyone run into this scenario?



QUOTE (investmart @ Jan 12 2009, 04:43 PM) Hi All,

As a rule of thumb, do you not accept any tenant with even one collection reported on his credit report?

Also, what do you tell the applicant/how do you explain your decision to him/her? Just say something like "Unfortunately, I can not accept your application due to issues shown on the credit report"? Any better way to inform the applicant?

THANKS,
Neil

 

[EdRenkema]

QUOTE (mlwilliamson @ Jan 14 2009, 08:51 PM)

Ed,

Currently I have (4) 21 years that have sent in an application to rent my condo. Applicant makes less than the other 3 and only the co-applicant as been employed in present position for more than a year. Should the applicant not be the higher income earner? Also would you use the total income for 4 adults to rent a 3 bedroom condo? As anyone run into this scenario?

I can`t really advise since I don`t know the full picture.
With 4 adults I would think you can use their total income as long as you get all 4 on the lease.
Get the credit check and as many personal references as you can, personally I`d rather rent to a family, more chance of them staying together, but if they qualify why not. Just cover all the bases and you could have it rented for a year minimum.

 

[CalvinPeters]

QUOTE (investmart @ Jan 12 2009, 02:43 PM) Hi All,

As a rule of thumb, do you not accept any tenant with even one collection reported on his credit report?

Also, what do you tell the applicant/how do you explain your decision to him/her? Just say something like "Unfortunately, I can not accept your application due to issues shown on the credit report"? Any better way to inform the applicant?

THANKS,
Neil

Hey Neil! I have a little experience at this...I have always just used a `gutcheck` after i see the details. If they have a tendancy to not pay their bills, they sure wont pay their rent. In most cases you can see a pretty clear history...and the past ABSOLUTLY preditcts the future. In cases where I have accepted a tenant that didnt pass the gutcheck...I have been screwed everytime. (no matter how well reffered or related to the property) I have heard some pretty unbelievable stories too! Funny thing though...the people that have ace credit...keep it. They are worth their weight in gold.

One more note...given the high percentage of seperated people moving into their own houses...you will likely see some short term nastyness on the report...spiteful ex`s. (I have experience with that one, too!) The gutcheck should get you past that one. Never go against the gut. Like the others have said, I too have `rented to someone else.` Kind of hard to argue with that one.

Good luck! -Calvin