Good Credit

We currently have a rental unit available. As my wife shows the property to prospective tenants and we receive applications for screening, I am reminded about the importance of managing credit. The rental business is thriving and we receive numerous applicants. Our quantitative means to assess each applicant is via a tenant screening service offered by one of the main credit reporting agencies.

While an eviction history, criminal record, too low income or recent bankruptcy may disqualify some applicants immediately, the merit of an applicant almost always comes down to one single factor, credit score. We rank order the applicants based on the score assigned from the screening service and select the highest one. Make no mistake, this is a good problem to have, for landlords. But managing rental properties is a people business and one can’t help but feel some sympathy for those applicants we have to turn away…because of a number. These are good folks, who perhaps made personal finance mistakes in their past wrecking their credit. Now it is impacting their choices for housing!  

I don’t pretend to know the “science” that goes into determining credit score and the best strategy for repairing damaged credit. My wife and I only know the rudimentary personal finance principles we were taught as kids. Distinguish between needs and wants, don’t borrow more than needed and pay bills on time. From what we’ve observed over the years it appears these simple principles still hold true.

The reports we receive from the credit agency are very detailed. We can see how much an applicant owes and how they’ve been making monthly payments on every single one of their debt accounts. From car loans, credit cards, student loans to home mortgages, we can view whether payments were on time, late or turned over to collection. This is incredible insight into an applicant’s financial lives and also just a little scary! Multiple collections and late payments quickly lower a credit score and most often will result in a “decline” recommendation from the screening service.  

Additionally, we see how many credit inquiries were made in the recent past.  While not the biggest factor impacting overall credit, multiple recent inquiries do bring a score down. We can see every inquiry an applicant has made. Unfortunately, nowadays many of life’s necessities such as starting a new phone service, connecting utilities or applying for housing requires a credit pull. These types of credit inquiries are certainly understandable. However, it’s multiple retail credit cards and other revolving debt accounts that catches our attention.

I’ve shared my thoughts previously on retail credit cards offering 10% off on first day’s purchases. So many folks are lured into this spur of the moment decision to save 10% on just a single days’ worth of shopping. I’ll admit, I fell prey to this trap a time or two when younger. If one stopped to think how that retail card could impact their credit score when trying to secure a basic necessity such as housing, most folks would never apply. Even the smallest financial decisions have consequences!

Our best applicants usually have minimal revolving debt accounts which ironically, also mildly impacts credit score. The accounts they do have reveal perfect payment records. Additionally, best qualified applicants have minimal credit inquiries. Mostly their credit is pulled for basic necessities such as apartment applications, car loans or phone service. Not retail credit cards! This provides insight into how they manage personal finances.

It’s always a joy to tell someone they were the best qualified applicant and offer the home to them for lease. But again, we can’t help but feel sorry for those prospective tenants who were excited to apply for our rental home only to be turned away because their credit is too low. There are stories behind each applicant’s financial journey. In many cases, their low credit score may be due to poor personal finance decisions when younger. For others, the applicant may have taken on too much debt because they had no other way to live. Regardless of how their credit was lowered, I am not sure if relying on credit scores is the most equitable system for selecting tenants. That being said, it’s the one commonly used in America today.   

Witnessing the impact of poor credit history on literally hundreds of rental applicants over the past 15 years is just one of the many reasons why I continue to blog and self-publish books on personal finance and investing. Some folks who read my work may critique my themes on finances as just common sense or too rudimentary. Based on my observations, personal finance common sense, may in actuality, not be very common.  And if I can share experiences that could help just a few readers make better personal finance decisions, then I’ll gladly take the critiques!

Looking for a good how-to on wealth building? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truth’s to Build Wealth on sale now at Amazon!

Interested in rental property investing? Look for “Collect Rent, Don’t Pay It: A Beginner’s Guide to Rental Property Investing” on Amazon to learn how our family turned rental property investing into a successful side hustle!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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